Pearls and Irritations

Category: Economy

  • Greg Smith. Australian Tax Reform 2015

    Why are we discussing tax reform again, and what really are the priority issues?

    The Federal Government has released a wide-ranging discussion paper on the Australian tax system, yet Australia has been reforming its tax system for the past 35 years.

    The last major reform in 2000 – then called the New Tax System – included the introduction of the Goods and Services Tax (GST). For several years afterwards, the tax system looked efficient, robust, and fair, and met the Government’s wider policy objectives.

    So what gets us to this point of reassessment again?

    Australia’s tax reforms have had one key theme. They have broadened tax bases so as to lower tax rates. This is true for taxes both on income and expenditure

    This theme has three main purposes.

    First, maintaining tax revenues often requires base broadening because economic activity shifts over time from higher to lower taxed activity, reducing the revenue robustness of the system.

    Second, broader bases and lower rates reduce economic distortions and so are more economically efficient.

    Third, without adjustment the fairness of taxes declines over time as some taxpayers learn to exploit any rate and base margins in the system.

    Over the past 15 years, while the new tax system largely stood still, social and economic change has continued. This has meant that pressure for tax reform has rebuilt for each of its three main purposes.

    The most significant developments have been:

    • Overall revenue robustness has fallen. As a share of national economic output, the tax system is collecting less now than in the several years after 2000.
    • The consumption tax share of revenues has fallen. The GST share has fallen because households save more than previously and because consumption patterns have shifted towards exempt items like education, health and overseas purchases. Fuel taxes have not been maintained in real terms, consumption shares of excised products has fallen and import taxes have been reduced as part of trade reform.
    • Fairness of saving and investment taxes has been challenged as more taxpayers exploit the margins. Concerns regarding the cost and distribution of the concessions for capital gains and superannuation, and to some extent the interface between company and personal tax systems, has increased.

    These developments are already entrenched and have very little to do with broader fears about the future. They are not much about the globalising economy or about the future intergenerational health and ageing agenda.

    The fact is that there has been little change in the openness of the Australian economy over the last 15 years and there will be relatively little impact of intergenerational change over the next 15.

    The main issues we face now are really more basic ones of getting the right calibration of policy to stay on our generally good economic track.

    The aggregate revenue task and the decline in consumption taxes point to much the same response.

    The decline in Commonwealth indirect tax collections as a share of gross domestic product (GDP) translates to around $20 billion per year. If we do nothing, this gap eventually will be met by increasing personal income tax mainly on wages, through ongoing bracket creep.

    Key issue number one, then, is whether to restore indirect taxes instead, through base broadening and perhaps some rate increases.

    There is also within this an issue of timing and the relationship with fiscal policy – should restoring indirect tax revenues contribute to budget repair or should it wait and be applied only to future personal tax cuts? The answer to this goes beyond considerations of tax reform alone.

    The third emerging problem, addressing increased exploitation of the tax margins, provides both challenges and opportunities in the crafting of tax reform packages.  Many of the key margins relate to the taxation of different forms of saving and investment.

    The challenge in this area is that saving and investment are vital to Australia’s long term social and economic future.

    Australia has built a very strong society and economy, often with innovative policy in areas like occupational superannuation, means testing of age pensions and dividend imputation. Policies have also supported home ownership and competitive business and markets.

    At the same time, the exploitation of tax features in these areas mainly benefits those on higher incomes who have the greatest capacity for saving and investment.

    So key issue number two, then, is whether and how to adjust the tax margins in areas related to savings and investment to preserve growth while reducing undue exploitation.  In essence, while the fundamental provisions should continue, some adjustments could contribute to maintaining revenue, increasing investment efficiency and fairness.

    Particular issues have already been canvassed in studies like the Henry Tax Review, including:

    • Whether the capital gains tax discount should be reduced, or perhaps abolished in the case of superannuation funds already taxed at concessional rates.
    • Whether superannuation concessions should be scaled back especially for those on high incomes and superannuation access better targeted to retirement purposes.
    • Whether any reductions in company tax rates should be funded by other or broader business or investment tax bases.

    Australia has a broadly effective tax system, and it was calibrated to closely match fiscal and other public policy objectives in the several years after 2000.

    It is not now quite as closely matching those objectives and if we could agree on that, we could reasonably proceed to make the updates necessary to restore key performance levels.

    Of course, some will want to pursue other objectives, and that will bring greater controversy and risk. But I suggest the priority now is just to get back onto the previously established performance track.

    To do that the priorities are: first, to steadily restore aggregate revenues as a share of GDP; second, to do this mainly through restoring the post-2000 indirect tax share; and third to maintain both fairness and ongoing revenues by moderately scaling back tax concessions to capital gains and superannuation.

    Greg Smith was a member of the Henry Future Tax System Review Panel. He has also been head of the Treasury Tax Policy and Financial Institution Divisions and of Treasury Budget and Revenue Groups. This article was first published by CEDA.

  • John Menadue. More problems with the Department of Health and Ageing.

    On 16 March, I drew attention to a Capability Review of the Department of Health and Ageing by the Australian Public Service Commission. It set out a very worrying analysis of the overall performance of DHA.

    We now have a report by the Australian National Audit Office of DHA’s administration of the Fifth Community Pharmacy Agreement (5CPA). The 5CPA is the fifth agreement which the Commonwealth Government has made to provide subsidised medicines to Australians who are eligible through the Pharmaceutical Benefits Scheme (PBS). This agreement is with community pharmacies across Australia.

    The Australian National Audit office points to major concerns about DHA’s administration of this 5CPA.

    It says ‘Six broad principles and objectives were included in the 5CPA. Limited departmental information plus shortcomings in DHA’s performance reporting and 5CPA evaluation framework mean that the department is not well positioned to assess whether the commonwealth is receiving value for money from the agreement overall, or performance against the six principles and objectives.’

    The report adds ‘Administration of 5CPA has been mixed … A number of key government negotiating objectives for the 5CPA were only partially realised and there have been shortcomings in key aspects of DHA’s administration at the development, negotiation and implementation phases. …’

    The report refers to shortcomings in the Department’s estimation methodology and that a number of the government’s strategic negotiating objectives were only partially realised.

    Like the Capability Review by the Australian Public Service Commission, this report by the Australian National Audit Office points again to the extremely worrying performance of the Department of Health and Ageing.

    The performance of the department on co-payments should not be a surprise to anyone.

    The long-time secretary of the Department of Health and Ageing has been promoted to become the Secretary of Finance.  John Menadue.

    See link below for full report.

     

     

    http://www.anao.gov.au/Publications/Audit-Reports/2014-2015/Administration-of-the-Fifth-Community-Pharmacy-Agreement/Audit-summary

  • John Menadue. Cars are killing our cities.

    At almost every election, we are being wooed with stories of more freeways to accommodated more and more cars. It is self-defeating. In our public infrastructure we waste more money on roads than on anything else. As I have argued in my re-post below, there are a whole range of policy issues that we must address to curb the growing volume of cars and the damage that they are doing to our cities.  We refuse to embrace it, but we will be forced to consider congestion taxes to limit road use.

    In the current NSW state election, the Liberal Party is proposing as a centrepiece of its policy, a WestConnex Stage 3 development, a toll road in western Sydney. The NSW government claims that this toll road will carry 120,000 each day by 2031. Unfortunately, Australia has a history of over-predicting the usage of toll roads. As Michiel Bliemer in The Conversation … see following link … points out that ‘The patronage of the Sydney cross-city tunnel was estimated to be almost 90,000 cars per day by June 2006. The actual number of cars using this tunnel was only 34,000 per day. Toll revenues were therefore much lower than predicted, leading to a bankruptcy after 16 months. Similar over optimistic predictions were made for the Lane Cove tunnel in Sydney and for Brisbane’s Clem7 tunnel and the Airport Link, which also had financial problems’.

    Governments and road builders have a direct interest in over-stating the value of toll roads and investment in roads. See link to Michiel Bliemer’s article in The Conversation below.

    http://theconversation.com/why-fewer-drivers-are-likely-to-use-westconnex-than-predicted-38286

    Re-post from 20/11/2013.

    Congestion and pollution are killing our cities. The automobile is so convenient for all of us that we put aside the enormous problems that the automobile is creating. This is not just a problem for the industrialised and wealthy western countries. It is a problem for developing countries as they upgrade from bicycles to motor cycles and then to cars.

    A constant message that we all generally endorse is that public transport, particularly trains in various forms, are the answer. But it is likely to be only a partial answer. Cities like London and Paris have excellent metros or underground public transport systems, but road congestion is still horrific and it is getting worse.

    Some hard-headed political decisions will have to be made about automobile congestion and that will involve decisions to curb the use of cars in our cities. This will not please the very powerful motoring lobby. It won’t please Tony Abbott who wants to build more roads as a major plank in upgrading infra-structure.

    One inevitable decision would be severely restrict any more new freeways… Such an approach would have to be accompanied by a congestion tax with the revenue hypothecated to public transport. With a congestion tax system the higher the level of congestion the higher the rate of tax. It would provide a clear incentive/penalty for motorists not to travel at peak times.

    I just cannot see our cities surviving without congestion taxes to limit the number of cars. With such congestion taxes, we will all be forced to make decisions whether our use of the car/van is worth it, whether for private or business purposes.

    We will also need to address other options to reduce the number of cars on the road including increased sales taxes, registration fees and the fuel excise. In almost every respect these imposts are much lower in Australia. In Denmark the sales tax on motor vehicles is 143%, in Finland 53%, the Netherlands 48% and Sweden 30%.  In Australia it is 10%

    One feature of most European cities is that their cars are much smaller than ours. That reduces both congestion and pollution. To take a local example, a Toyota Hilux 4×4 emits on average 4.6 tonnes of CO2 each year compared with a Toyota Corolla of 2.3 tonnes of CO2 each year. These larger cars not only pollute more and congest our roads, but also dominate parking facilities.

    We can’t keep putting off the debate about limiting the growth of cars in our cities. They are making city life more and more difficult and unsustainable. Public transport is only part of the solution. We have to limit cars on the road. Only in quite exceptional reasons should any more freeways be built. It is a vicious circle with more freeways encouraging more car use and really only shifting the bottlenecks.

    We need to break free from our own addiction to the car and the power of the vested interests in the motor lobby.

    We need to limit cars on the roads at peak times as well as building public metro systems. Paris and London show us that we need to do both

    When the Mayor of London directly tackled the gridlock on London’s roads many years ago he gained wide support.

  • Joseph Stiglitz on the Trans Pacific Partnership.

    At a community meeting in New York Joseph Stiglitz drew attention to the risks of TPP. He referred to the secrecy about the whole proposal. He said that TPP ‘is much worse than a blank cheque about trade’. He added that TPP ‘would not only become the law of the land, but every other law would have to adapt to it … and our Congress would have given up all authority in those areas – the environment, worker safety, consumer safety, and even the economy’. For full report of this meeting, see link below.  John Menadue

    In The Times

     

  • John Quiggin. The Trans-Pacific partnership: it might be about trade, but it’s far from free.

    There can be few topics as eye-glazingly dull as international trade agreements. Endless hours of negotiation on such arcane topics as rules of origin and most favoured nation status combine with an alphabet soup of acronyms to produce a barely readable text hundreds of pages long. But unless you were actually involved in exporting or importing goods, or faced import competition, it used to be safe enough to leave the details to diplomats and trade bureaucrats.

    That all changed with the emergence of “new generation” agreements, of which the most ambitious so far is the Trans-Pacific Partnership Agreement, or TPP, which is on course to be completed in May this year. Depending on the content of the final deal, it could affect almost everything we do, from buying a secondhand book to campaigning to protect a local park from development.

    Although the new generation agreements are described as trade agreements, this is quite misleading. Except for restrictions on imports of agricultural commodities (which are unlikely to go away any time soon), tariffs, quotas and other restrictions on trade have largely disappeared in our region. The new generation agreements are primarily about imposing a particular model of global capitalism, with the United States as the model and multinational corporations as the main engines of economic activity. It’s already clear that the TPP will fit this pattern.

    But what exactly do we know about the deal? If it were not for an embarrassing leak of the negotiated draft text of the intellectual property and environment chapters, released by WikiLeaks in late 2013 and early 2014, ordinary Australians would know nothing more than the barest details, namely that the TPP has been the subject of more than a decade of negotiations involving twelve countries, and that it builds on a web of bilateral deals with the United States at the centre.

    Given the lack of public information, the negotiations are often described as secret, but this is not quite correct. While citizens in general have been kept in the dark, corporate lobbyists have been actively involved, apparently to the point of drafting much of the text as it affects their corporate interests.

    By the time we do see the final text it will probably be too late to do much about it. So we have to make an educated guess, based on the WikiLeaks material and on previous new generation agreements, of which the most important were the (failed) Multilateral Agreement on Investment, or MAI, the Agreement on Trade-Related Aspects of Intellectual Property Rights, or TRIPS, and the Australia–US Free Trade Agreement, or AUSFTA.

    These agreements are primarily concerned with protecting the rights of multinational corporations. This fact was clearest in relation to the MAI, which proposed to give these corporations the right to sue governments over legislation on issues such as environmental protection, cultural policy and labour market standards. These investor–state dispute settlement procedures have become a standard demand of US negotiators in bilateral trade agreements. They bypass normal courts, and are only available to corporations, with no corresponding right for states to sue investors.

    The MAI would have made them a core part of the structure of global trade managed by the World Trade Organization. But the agreement was abandoned after a string of governments, beginning with France, withdrew from negotiations in the light of public concerns about its implications. Attempts to implement it by other means have continued, with the TPP being the most recent example.

    The TRIPS agreement dealt with “intellectual property,” a term that refers to government-granted monopoly rights such as patents and copyright. As such, it is the direct opposite of a free trade policy. The idea of granting inventors and creators of cultural material a temporary right to control the use of their ideas is an old one and, within limits, generally a good one. But as valuable rights have fallen into the hands of corporations, pressure has increased to make them more permanent and to expand their scope.

    When the US copyright system was established in 1790, writers and other creators enjoyed a copyright term of fourteen years, which could be extended for a further fourteen years if the author were still alive. This provided the chance to make a living out of writing while ensuring that the vast majority of literature and other cultural material was in the public domain. Over time, the term of copyright was extended to the author’s life and then beyond, and the scope was expanded to material that would not have been considered worthy of protection in the past. The result was to build up corporate interests centred on the exploitation of the system.

    The archetypal example is the Disney Corporation, which derives a huge income from the character of Mickey Mouse. Under the legislation prevailing when Mickey was created in 1928, his copyright would have expired in 1984. Whenever Mickey’s copyright has come close to expiry, though, Disney has succeeded in inducing Congress to legislate for longer terms.

    Another Disney property, Winnie the Pooh, is an even more egregious case. Mickey Mouse is at least a Disney product, but the rights to Winnie the Pooh were acquired in 1961, five years after the death of his creator A.A. Milne. Again, if it were not for repeated extensions of copyright, Winnie would be in the public domain.

    Restrictions on the use of cartoon characters aren’t of great importance. But the expansion of copyright has had a chilling effect on creative activity of all kinds. Even such a simple act as singing the song “Happy Birthday,” composed over a hundred years ago using an even older tune, can potentially attract copyright action from the global conglomerate Warner/Chappell (which has a dubious claim to own the rights). This possibility becomes a certainty if the song is sung as part of a film or play.

    If the copyright situation is bad, that of patents is even worse. The patent system for pharmaceuticals has been abused in various ways, from “me too” products with little additional benefit to “evergreening,” involving marginal changes to extend patent life beyond the legally intended period. Then there is the extension of patent protection to things that were never intended to be covered, from business methods to human genes. The result is to stifle the natural tendency of information to flow freely and contribute to new and unexpected innovations.

    At the bottom of the heap are “patent trolls,” companies that file patents on trivially obvious activities, such as using a scanner attached to a network. These patents are invariably granted by the intellectual property authorities, whose job it is to decide whether a novel process has been identified. The trolls then send out letters demanding money from anyone who infringes their supposed patent. In many cases it is cheaper to settle than to fight.

    The abuse of the patent system has become so bad that some studies conclude we would be better off abolishing patents altogether. Courts and policy-makers have responded to some extent, for example by finding against patent trolls. Unfortunately, trade negotiators haven’t got the message and are still pushing the most extreme version of the intellectual property agenda.

    The implications of intellectual property deals and investor–state dispute mechanisms are best illustrated by the dispute over Australia’s legislation for plain packaging of cigarettes. The tobacco companies fought this legislation through the political process and lost. They took their case to the High Court, claiming that the legislation was an unconstitutional “taking” of their branding rights, a claim rejected by a 6–1 majority.

    If it were not for the new generation trade deals, that would have been that. But these deals gave Big Tobacco many more venues for litigation. First, the tobacco companies ginned up such major cigarette producers as Ukraine and Honduras to bring disputes under the TRIPS agreement. Next, Philip Morris undertook a corporate restructure to reinvent itself as a Hong Kong company, taking advantage of a 1993 deal with Australia that incorporated investor–state dispute settlement provisions.

    It goes without saying that these cases have no merit. But while they drag on, they deter other countries from following the Australian example. And, should the unaccountable tribunals established under these agreements rule in favour of the tobacco companies (for whatever reason), Australia has access to absolutely no redress.

    The emergence of plain packaging legislation as a test case may perhaps prove to be a blessing in disguise. There are few litigants less sympathetic than Big Tobacco, reliant on a deadly and addictive product and marked by a long history of dishonesty, criminality and political corruption. The fact that the countries notionally bringing the dispute have no genuine interest makes the case even more unappealing.

    Despite their trappings of legality, the tribunals of the World Trade Organization and similar bodies are political bodies. The WTO in particular has been badly burned by the political reaction against its decision that US policies requiring “dolphin safe” labelling of tuna represent an improper restriction of trade. As a result, it recently reversed its previous stance and upheld EU restrictions on the importation of skins from Canadian seals killed in the infamous clubbing hunt.

    The political fallout from a decision in favour of Big Tobacco would be far worse than anything the pseudo-courts of international trade have experienced before. It would instantly confirm the most dire predictions of critics of investor–state dispute procedures and intellectual property rules. Precisely for this reason, it seems likely that the tobacco lawsuits will fail, setting precedents that will constrain future abuses of these provisions. But that doesn’t change the obviously undemocratic nature of agreements under which Australian health policy can potentially be overturned by the machinations of corporate lobbyists.

    Given our recent experience with such deals, would an Australian government be willing to expose us to more such action? The Labor government responded to the plain packaging dispute by announcing that it would discontinue the practice of seeking to include investor–state dispute provisions in trade agreements with developing countries. More generally, there was some movement away from strong intellectual property policies in areas such as fair use of copyright materials.

    But this shift has been reversed under the Abbott government, with its recent rush of bilateral agreements. Unsurprisingly, political journalists pay hardly any attention to the actual content of these agreements, and their signing is almost invariably treated as a political win for the government of the day.

    This uncritical attitude is reflected in the generally favourable press received by trade minister Andrew Robb for the signing of agreements with Korea, Japan and China, bringing a rapid conclusion to negotiations that had proceeded at a glacial pace under Labor. No one in the normally hardbitten press gallery, it seemed, was cynical enough to suggest that the easiest way to conclude a negotiation is to accede to the demands of the other party while withdrawing any sticking points of your own.

    In the case of the agreement with Japan, for example, Australia secured some modest concessions regarding tariffs on beef, which will be reduced from 38.5 per cent to 19 per cent over a period of fifteen years. In return, our government accepted the total exclusion of rice from the deal, and the maintenance of most restrictions on dairy products.

    The Korean agreement, KAFTA, was arguably even worse. Reversing our previous position, the government agreed to the inclusion of investor–state dispute provisions. This was apparently done not in response to Korean demands but because US negotiators were pushing the provision in the parallel negotiations for the TPP.

    It seems certain that the final agreement will involve a substantial loss of Australian sovereignty and an acceptance of economically damaging intellectual property rules. In return, Australia will receive marginal and long-drawn-out improvements in market access for agricultural commodities. While a Labor government might perhaps have held out for a better deal, it seems unlikely that the opposition will reject legislation implementing the agreement.

    Ironically, our best hope lies in the United States. The Obama administration, backed by the Republican congressional leadership, is seeking approval to push the TPP through on a “fast track” basis, which would not permit any amendments. But it is facing stiff opposition both from Republicans (concerned about sovereignty and unwilling to grant any additional power to Obama) and from liberal Democrats, who reject the key provisions of the deal. In the current congressional atmosphere, inaction is the most likely result of any contentious process. So, it may be that the deal will fail at this crucial hurdle. We can only hope.

    John Quiggin is Professor of Economics at the University of Queensland.

    This article first appeared in Inside Story on 15 March 2015.

     

  • John Menadue. Private health insurance and funding a Medicare Dental Scheme.

    In this blog I have written extensively about the damage that private health insurance (PHI) is doing in Australia. We are sleep-walking into a US style health disaster.

    If people want private health insurance, that is their right, but I see no reason why the taxpayer should subsidise a socially divisive and nationally damaging subsidy.

    The damage of PHI is increasing year on year. In my most recent blog on the subject at the time of the last annual increase in PHI premiums, I pointed out that since 1999 when John Howard introduced the subsidy on PHI, overall prices have risen by only 50% but PHI premiums have risen by over 150%.

    PHI has many damaging consequences and risks

    • It threatens our universal health system through seriously weakening the ability of Medicare as a single funder to control costs. We have seen the enormous damage that PHI has wrought in the US. We are steadily going down the same dangerous path. On present trends, we will have a divided healthcare system. One system will be for the wealthy with a safety net system for the indigent.
    • Private health insurance not only weakens Medicare, but in itself it does not have the market power to match the power of health providers who hold all the cards.
    • It favours the wealthy who can jump the public hospital queue by going to private hospitals.
    • It penalises country people who have limited access to private hospitals.
    • It has administrative costs three times higher than Medicare.
    • It has made it extremely difficult for public hospitals to retain specialists who are attracted to remuneration which is often at least three times higher in private practice and private hospitals.
    • There are government-supported trials in Queensland to extend coverage of PHI to general practice.
    • Medibank Private is pressing for PHI holders to get preference in emergency departments.

    I could go on, but I have said much of it before. We are really sleep-walking into an American style health disaster.  The future of Medicare is at stake, but the ALP which was the proud founder of Medibank/Medicare doesn’t seem to care.

    And the cost of the taxpayer subsidy which I had previously estimated at $7 billion p.a. is now approaching $10 billion p.a.  This is middle-class welfare writ large.

    Let me explain how this figure of $10 billion is calculated:

    The cost of PHI.

    Direct outlays on PHI from Budget Paper 1, 2014-15

    2013-14               $5.977 b.
    2014-15               $6.302 b.
    2015-16               $6.565 b.
    2017-18               $7.187 b.

    But there’s more! The rebate is essentially tax-free income for those who get it.  So, under the tax expenditures statement in Budget Paper 1 is the line item:

    “Exemption of the private health insurance rebate, including expense equivalent”:

    2014-15               $1.510 b.
    2015-16               $1.600 b.
    2016-17               $1.650 b.
    2017-18               $1.690 b.

    Adding these together you get:

    2014-15               $7.812 b.
    2015-16               $8.165 b.
    2016-17               $8.523 b.
    2017-18               $8.877 b.

    To this should be added the benefit of exemption from the Medicare Levy Surcharge.  That calculation, based on ATO tax tables takes some time to do and requires some assumptions to be made.  Last time I looked, quite a few years ago, it was more than $1 billion.

    We get up to about $10 billion, and that’s before looking at the inflationary effect of PHI which, if the experience of USA (and other countries) is any guide, dwarfs such budgetary expense.

    A quick back-of-the-envelope calculation using Australian Institute of Health and Welfare (AIHW) figures illustrates the point:

    In 2012-13 Australia’s total health expenditure was $147 billion.
    This was 9.7$ of GDP.
    In the USA (in 2012) it was 16.9% of GDP.
    Add another 7.2% of our GDP ($1.583 trillion in 2013-14), and
    You get an additional $114 billion.

    We are talking big money.

    It’s hard to get health ministers or health department public servants to think this way, however. The former minister, when questioned about total expenditure (government and non-government) on services within his portfolio couldn’t even give a rough answer.  I suspect the same would go for any minister. The concern of ministers is only what passes through their own budgets.  Public attention is directed from the public purpose to fiscal performance – ‘a triumph of finance over economics’.

    A MEDICARE DENTAL HEALTH SCHEME

    I am usually reluctant to propose cuts in one area of government expenditure to finance a new area. But I do believe that the future of Medicare is at stake if the expansion of taxpayer-subsidised PHI continues.

    Abolishing this $10 billion middle-class subsidy would carry risks considering the powerful PHI lobby and the associated private hospitals that are large donors to the Liberal Party, like Ramsay Healthcare. For this reason I propose that the PHI subsidy currently of $10 billion p.a. and growing should be abolished and the savings used to fund a Medicare Dental Scheme.

    Dental Costs

    I have assembled the table below from the latest AIHW data.

    Recurrent expenditure on dental services 2012-13

    Commonwealth
    Department of Veterans Affairs                  $100 m.
    Other                                                                        $843 m.
    PHI premium rebates                                     $606 m.

    Total Commonwealth                                   $1549m

    Total State                                                       $657 m.

    Total government                                                                       $2.206 b.

    Non-government
    PHI net of rebates                                          $1.396 m.
    Individuals                                                          $5.066 m.
    Other                                                                     $73 m.

    Total non-government                                                              $6.499 b.

    TOTAL expenditure                                                                                         $8.705 b.

    Those figures are a couple of years older than budget figures.  But, as a rough estimate, the Commonwealth government’s expenditure on PHI and the individual expenditure on dentistry would about balance.

    Would it result in increased demand – probably, to the extent that there is a price elasticity effect?  I doubt if there would be much by the way of “supplier induced demand” however. Unlike other health services in that regard, dentistry is different but there would need to be some constraints on public expenditure for example on cosmetic dental work.  The introduction of a dental scheme would need to be carefully phased in to take into account the availability od dentists and support facilities.

    Abolition of the $10 billion tax-payer funded subsidy to PHI would clearly be enough to fund a Medicare Dental Scheme.  To me that would make very good policy and perhaps even some political sense.

    I assume that Bill Shorten is keen to preserve the great Labor monument, Medicare. If he also wants to differentiate his health policy from that of the Coalition, the abolition of the PHI taxpayer subsidy to fund a Medicare Dental Scheme could be just what he needs.

  • Peter Cosier. A healthy environment and a productive economy

    Over the next 12 months, the Commonwealth is going to lead discussion on two major areas of reform: to the roles and responsibilities of the Commonwealth and states in the Australian Federation, and reforms to the Australian taxation system.

    At the same time we have an adversarial battle raging across Australia between the environment and the economy.  Despite the significant advances in environmental policy of recent decades – national water reform, land clearing controls, a price on carbon – the public dialogue in recent years has increasingly shifted to a position that we must now sacrifice the environment to pursue a growing economy.

    The result is the winding back of water reform; the repeal of the ETS and constant attacks on the renewable energy target; the approval of thousands of coal seam gas bores across the landscape without a proper assessment of their long term cumulative impact on groundwater, prime agricultural land or biodiversity; the Commonwealth seeking to give away their responsibility to protect matters of national environmental significance; and in the recent budget, very significant cuts to environmental programs.

    This dramatic, myopic shift in environmental policy flies in the face of science and it flies in the face of good economics because, in the long run, degradation of our natural capital will come at an enormous economic cost to the community and business.

    The Federation reforms, tax reforms and the environment-economy debate are seen as separate, when in reality they are fundamentally linked.  They are linked because, in the long run, we can’t have a prosperous society if we continue to pollute our environment and degrade our natural capital.

    Whilst there are thousands of examples across Australia every day, where individuals, communities and businesses do strive to live sustainably – water conservation, solar panels, recycling – too often despite our best intentions, the long-term conservation of our natural capital has lost out to short-term commercial benefits.

    The consequence is that as a nation, we are taking more from our environment than its natural systems can replenish and that by any definition is unsustainable.

    These are huge issues, and if we are to deal with them we need a very different vision for Australia: a practical, forward-looking vision that embraces long term changes to the way we manage Australia.

    So how do we bring the economy and the environment together?

    The Wentworth Group believe that five interconnected, long-term economic and institutional reforms would create a healthier environment and a more productive economy:

    1. Fixing our reactive land and water use planning systems by putting in place regional scale plans that address the cumulative impacts of development on the environment and the long-term robustness of the economy.

    Modernising our planning systems would also make our towns and cities more sustainable in waste management, water efficiency, lowering emissions, improving amenity and reducing risks from natural disasters.

    1. Using markets to finance conservation by removing subsidies that pollute the environment and instead create economic incentives for business and consumers to conserve our natural capital.

    We do this by eliminating fossil fuel subsidies; setting a long-term emissions reduction target supported by rational market mechanisms; and introducing an equitable, broad-based land tax to pay farmers, indigenous communities and other landholders to transform the way we manage the Australian landscape.

    1. Conserving natural capital and turning around the systemic decline in biodiversity by closing the gaps in our national system of public and private reserves, connecting these across the landscape, and committing resources to a long-term plan to conserve our endangered native plants, animals and ecosystems.

    There is no technical or economic reason why Australia cannot restore viable populations of the vast majority of Australia’s threatened species and ecosystems.

    1. Regionalising the management of Australia’s natural resources so that investment decisions are underpinned by an understanding of how landscapes function.

    We are not proposing a fourth tier of government.  What we are advocating is that governments pioneer a new era of managing the Australian environment by working together, and with communities and industries, at a regional scale.

    1. Create environmental accounts: To do any of this we need to put in place regional scale, national environmental accounts that monitor the condition of our environmental assets, so that people can make better-informed decisions to support a healthy and productive Australia.

    These are significant reforms.  They are long-term, interconnected and transformational, both in the way we manage the Federation and the way the taxation system interacts with the economy and the environment.

    We live in an extraordinary country.  Our natural heritage is truly breathtaking.  Australia is enjoying a remarkable 23 years of uninterrupted economic growth.  There is no reason why the Australia of today cannot grow the economy, create jobs and maintain a healthy environment.

    But we have to stop kidding ourselves that the short term decision-making that is pervading our land use decisions today is not having a negative long term impact on our environment and on our economy.

    And we’ve got to stop kidding ourselves that the small handful of people who are responsible for managing Australia’s land and water resources have anything like the resources to do it without financial support from the rest of the community.

    On several occasions in the past, Australian governments, businesses, communities and individuals have responded creatively and energetically to environmental challenges, with positive outcomes for the health of the environment and economic productivity.  This has to be another such occasion.

    Our best chance of success is always when government does these things because our community demands it of them.

    People, businesses and civil society need to be active participants in the reforms to Australia’s Federation and taxation system so that we do create a productive economy that conserves our natural capital for the long haul.

    If we do, it will take us on a pathway where a healthy environment becomes a natural by-product of a stronger economy – a partner to economic growth, rather than a competitor.

    The Wentworth Groups Blueprint for a Healthy Environment and a Productive Economy can be accessed at www.wentworthgroup.org.

     

    Peter Cosier, Wentworth Group of Concerned Scientists

  • Graeme Pearman. Managing climate change: in whose interest?  

    The role of greenhouse gases in determining the temperature of the Earth has been known since the first half of the 19th century and in recent decades observations have shown clearly that human activities are changing the levels of these gases in the atmosphere. The science community has articulated the broad consequences of this for more than three decades.

    Yet in Australia the period from the late 1980s to the present has been characterised by a trend from an internationally leading and proactive approach to an approach that puts Australia in danger of incurring political and economic sanctions reflecting our growing pariah status. Maria Taylor has suggested this trend reflects a shift in cultural values including, important in the context of this volume, the demise of the ‘public interest’. Environmental leadership by the Hawke government has been overtaken by a dominant commitment to the neo liberal economic ideology. Sections of the media also played a role in communicating the new narrative about the irreplaceability of fossil fuels and a general scepticism about the science of climate change.

    To some it is evident that climate-change policy was designed to promote action to support key industries. This cultural change has had enormous implications for Australian life: the sectoral balance of the economy; employment, working hours and conditions; family life; volunteerism; attention to domestic and international welfare and environmental issues; and so on. Many now question whether as a result of being ‘wealthier’ we are happier and more secure, and whether the benefits have been equitably shared in the public good. Yet rigorous examination of these wider consequences is missing.

    Humans, all of us, find it necessary to have personal views of the nature of the world in order to operate on a daily basis. To a large extent we can do little more than construct this view from what our parents told us, our culture, our religion, our education, advertisements and at times from what those whom we admire have told us. These are constructed views of the world.

    The problem is that these are largely based on myth and rarely formulated from rigorously determined information. President Kennedy said the ‘great enemy of the truth is very often not the lie but the myth, persistent, persuasive, and unrealistic. Belief in myths allows the comfort of opinion without the discomfort of thought.’

    A greater reliance on ideological, often mythical, imperatives has lowered attention to evidence-based decision-making, a regression towards the times prior to the Age of Enlightenment. There has been a decline of investment in science and its representation in governments, and an expansion of the mindless view that science’s role in modern society is about product development and financial reward. This ignores the substantial value of building a deeper understanding of the world we live in, the natural environment, the operation of societies and limitations of our own humanity. It ignores investment in the power to anticipate and set goals for a future world that we consciously wish to achieve.

    Climate change is about modification of the global environment well beyond the strategic view of businesses. Concern for its potential impact on future generations and the natural ecosystems has limited power in the operation of the markets and market choice. Further, the impact of a changed climate may occur through largely explicable effects on agriculture, water resources and security, but also through disruption of the complex and dynamical nature of ecosystems in a way we cannot at this stage anticipate. The point is that the potential consequences have serious implications for the public good, now and into the future.

    Climate change is already impacting on concerns over energy futures and policy. There are many cases where this is poorly understood in the sense of its impact on the wider public good. For example, a recently announced discovery of a Cooper Basin gas reserve suggests its exploitation would ‘result in 60 to 120 trillion cubic feet of gas’. This is equivalent to 6.6 thousand million tonnes of CO2 or 11 times the current annual release of carbon dioxide from Australia. If exploited its release might occur over a decade or more and its spread may perhaps be international. But this one enterprise would represent about 83 per cent of the estimated Australian long-term ‘allocation’ of emissions as its part in the global effort to give a 75 per cent chance of keeping climate change near to 2oC into the future (8,400 Mt CO2 from 2013-50).

    Additionally, natural gas is methane that as a greenhouse gas is effectively about 34 times more powerful than CO2. Recent satellite imagery of North American tight geological formations suggests that leakage rates could be of order 10 per cent. The ‘greenhouse emissions’ advantage of gas over oil or coal is lost for any leakage of more than 3 per cent.

    The point here is who is to decide whether the exploitation of such gas resources, and many have been identified, is in the public interest? There would clearly be positive impacts on energy supplies, trade and employment. On the other hand there are potential negative impacts on our contribution to the reduction of global emissions and on alternative land-uses. There are risks related to the methane leakage issue and disruption to societies related to the transient nature of the businesses. Who will bear the cost of exposure to potentially stranded assets and the downside of biased or narrowly focused risk assessment? This is to say nothing of the questions about who really owns these resources in the first place and how benefits should accrue for all. Surely these are not questions for the energy companies or the energy sector alone.

    Governments have a responsibility to encourage entrepreneurialism and the economic benefits that may ensue from such resource exploitation. But we also expect governments to weigh these benefits in light of the public Interest. The federal government’s Energy Green Paper shows influences of ideological and sectoral views on energy futures that are perhaps understandable given the responsible department, but these may not be in the wider interests of the community. Thus a serious rethink is required to address how best to deal with complex, multi-factorial and strategic issues related to the public good given our modern, largely sectoralised, society.

    The view that economic imperatives should not dominate policy will be no more easily ‘sold’ than the need for action on climate change. It represents a challenge to prevalent ideologies and narrow corporate interests and a broad interpretation of what constitutes human wellbeing and welfare (in time and essence) that has fallen out of favour. As recently stated in an Age Editorial, ‘…. human society is built on the idea that the many are one. This is not socialism or communism, but humanism. Too often self interest and ideology, manifested in business and political, crash against this ideal.’

     

    Graeme Pearman AM retired from CSIRO in 2004 after 33 years of service including 10 years as Chief of the Division of Atmospheric Research. He pioneered studies of the global carbon cycle, fundamental to anticipating future climate change, and over-sighted the development of an Australian capacity in climate modelling and impact assessment. He operates a consultancy on climate science, energy futures, the impact of human and societal behaviour and sustainability. He is an Adjunct Senior Research Fellow at Monash University.

    This article was published recently, with many others, by Australia 21. The subject of the series was ‘Who speaks for and protects the public interest in Australia?’  www.australia21.org.au 

     

  • Helen Sykes and David Yencken. Leadership in the public interest.

      

    No fundamental social change occurs merely because government acts. It’s because civil society, the conscience of a country, begins to rise up – demand – demand – demand change. (Joe Biden, Vice President of the United States)

    History shows that the public interest can vary over time and between societies. These are, nonetheless, ideals that every nation should have for the wellbeing of its citizens. For Australia they include the protection of core values of democracy and society and the proper care of its people. They require the protection and nurturing of the physical environment as the source of sustenance and life. They ask that we maintain decent standards of living for all citizens and thus a fair and efficiently operating economy. They mean that our artistic and cultural heritage and traditions are treated with respect, support and encouragement.

    Many of these ideals, core values and social needs are under serious threat. One forceful way of confronting this challenge would be to try to reach agreement across Australian society about the major issues facing the country and to focus attention sharply on them. How might that be done and who should take a leadership role? Government clearly has a major role to play but the deficiencies of the political system in dealing with critical issues facing Australia and the world are all too apparent. Business has its part but works to its own rules so while it is an important source of enterprise and wealth generation for the country, it is not principally focussed on the broader public interest and often works contrary to it. The university sector has a critical role in carrying out research, promoting research findings and making its undergraduates and postgraduates aware of societal issues, but it rarely takes the main initiative in promoting new policies to protect the public interest except through the views expressed by individuals in university communities. Neither old nor new media are likely to don this mantle.

    There is another major sector, the civil society sector (or not-for-profit or non-government sector), which could play a lead role in bringing about change that serves Australia’s public interest. The Australian Productivity Commission in its 2010 ‘Contribution of Not-For-Profit Sector Report’ points out that the Australian Bureau of Statistics (ABS) ‘identified 59,000 economically significant NFPs, contributing $43 billion to Australia’s GDP, and 8 per cent of employment in 2006-07’. In support of greater recognition for the sector, the Productivity Commission Report also notes that ‘the level of understanding among the wider community of the sector’s role and contribution is poor and deserves attention’.

    There are other reasons why this sector is ideally placed to take a leadership role. One is the rich array of skills covering the widest range of issues to be found within it. Another is the standing of the sector in the eyes of the public and the trust in which it is held. Edelman, the global public relations company, has just released the findings of its 2015 Trust Barometer. Once again the survey shows that non-government organisations (NGOs) enjoy the highest levels of public trust, ahead of government, business and the media, although disappointingly the level of public trust in all institutions has fallen this year. The drop in trust for NGOs has only been small, however, and still leaves this sector highest ranked and well-placed to take the lead in promoting the public interest.

    What stops the civil society sector acting more vigorously? Key problems are its fragmentation and lack of resources. Australia is a rich pluralistic society within which many different voices speak out freely for the causes about which they are concerned. But such diversity can blunt a sharp focus on the most important issues and thus the likelihood of the media or politicians paying serious attention.

    A challenge for the sector is how to make the most effective use of its diversity and skills to generate a list of critical issues and get wide agreement about them. This could, no doubt, be done in many different ways.  Since there is not space to explore alternatives in any depth, we focus here on two key principles that should inform the task and one proposal that might produce a powerful outcome.

    The principles are that the work undertaken should fully engage the civil society sector and that it should be intellectually rigorous. With these two principles in mind we suggest that a representative group of civil society organisations should take the first step by preparing a preliminary list of the most important issues facing Australia, inviting the widest possible inputs.

    The second step would be to submit this list to a consortium of academics from Australian universities for checking, review and further development. When the academic review is completed a series of ‘citizen parliaments’ would be an ideal way to test and promote the research findings with community members. All community consultations should have multiple aims: to gather further valuable inputs, to create a learning environment for all concerned, and to gain the greatest amount of media attention and reporting.

    The civil society sector would have the responsibility for promoting the findings of the research, individually and collectively, so that they become key issues regularly taken up in the media, leading in turn to pressure on all political parties to respond and incorporate into their policy commitments. Ideally the exercise should be repeated at regular intervals. The ongoing research team should be a dynamic group constantly kept alive with the injection of new voices, ideas and energy.

    Funding of the project would no doubt be a challenge. Every effort should be made to ensure that the funds needed come from the combined resources of civil society organisations, universities and philanthropy and not from business and government.

    Sir Gustav Nossal reminds us that: ‘Community leadership is the courage, creativity and capacity to inspire participation, development and sustainability for strong communities.’ Australia’s civil society sector is well placed in Biden’s words to rise up, demand change and show that leadership.

     Helen Sykes AM is the Director of Future Leaders, President of the Trust for Young Australians, Chair of The Australian Collaboration, Vice President of the Council for the Humanities, Arts and Social Sciences, Associate of Melbourne Sustainable Society Institute, Member of the Future Justice Executive, Summit Governor of the Hillary Institute, and Board Member of the Public Interest Journalism Foundation. She has published and edited many books.

    David Yencken AO is Professor Emeritus and former head of the School of Environmental Planning at the University of Melbourne. He is Patron of the Australian Conservation Foundation. He was the inaugural Chair of the Australian Heritage Commission and the former Secretary for Planning and Environment in the Victorian government. He was later the founding Chair of the Australian Collaboration. He has written, co-authored or edited eight books.

    This article is one of several published by Australia 21 on the subject ‘Who speaks for an protects the public interest in Australia?’  See website www.australia21.org.au 

     

     

  • Michael Keating. The 2015 Intergenerational Report

    Purpose of the Intergenerational Report

    The Intergenerational Report (IGR) should be an important document.  It purports to tell us what the Australian population, economy and Budget could look like in forty years time.

    Of course no-one really knows what the economy will look like in forty years time. Instead the IGR tells us how fast the economy could grow over the next four years if the drivers of economic growth – population, participation and productivity – continue to have the same future impact as in the past. So despite the declared optimism of the Treasurer about our economic future, and how much better off we will be, as far as the IGR is concerned that future has been established by definition and is certainly not proven.

    But that is to miss the point of this IGR and its three predecessors.  Rather the IGR is a conditional projection designed to help us assess the sustainability of government policies impacting on expenditure and revenue, assuming that the economy continues to grow in much the same way as in the past.  That is a useful exercise, especially as each of the four IGRs so far have signalled a future long run Budget deficit, although the magnitude has varied substantially from one IGR to another (see Table below). This in itself reinforces the need for caution in interpreting the IGR projections as a basis for policy action.

    Projected Fiscal Deficit in Successive Intergenerational Reports

    Per cent of GDP

    Report Projected deficit forty years later
    2002 5.2
    2007 3.5
    2010 3.0
    2015 6.0

     

    Nevertheless the principal message in all the IGRs is that assuming no change in present policies, there are pressures for public expenditure to grow faster over time than the economy and revenue; principally because of:

    • the ageing of the population,
    • the disproportionate impact of more expensive technologies on the cost of health care, and
    • the relatively high demand for more health and education services as incomes rise.

    Accordingly it would seem prudent to start taking action now to bring the budget back onto a more sustainable basis in the long run, especially when the present starting point is itself an unsustainable deficit. But given the inevitable uncertainties associated with these projections, the pace and extent of fiscal tightening should be subject to constant review as events unfold.

    Although this message of the need for ongoing fiscal restraint is common to all of the four IGRs so far produced, this latest 2015 IGR is different in both tone and presentation.  In particular, the three previous IGRs had only one fiscal projection based on a continuation of present policies, whereas this 2015 IGR has three scenarios. In itself this introduction of scenarios might be a good innovation, as they could serve to further illustrate the relative significance of the uncertainties involved in these projections. Unfortunately, however, that does not seem to be the main purpose of the three scenarios in the 2015 IGR; rather their purpose seems mainly to make polemical points about the irresponsibility of the previous Labor Government and those who continue to oppose the Government’s budget measures in the Senate.

    The fiscal scenarios

    The three fiscal scenarios provided in the 2015 IGR are:

    1. A ‘previous policy’ scenario which purports to reflect the situation that the present Government inherited on its assumption of office along with a continuation of what would have allegedly been the previous Labor Government’s policies. Under this scenario an underlying cash deficit for the Budget is projected equivalent to 11.7 per cent of GDP in 2055, and net debt would reach almost 122 per cent of GDP.
    2. A ‘currently legislated’ scenario, which uses the Government’s savings measures that have actually been passed by the Parliament, and for 2055 it projects a Budget cash deficit of almost 6 per cent of GDP and a debt to GDP ratio of almost 60 per cent.
    3. A ‘proposed policy’ scenario, which is based on full implementation of the present Government’s policies as they had been announced – a couple of these policies have been reversed since the scenario was completed (namely the Medicare co-payment, the Defence Forces pay, and possibly additional expenditure on international and domestic security). According to this scenario the underlying cash balance of the Budget will improve to a surplus of 1.4 per cent of GDP in 2040, and then moderate to a surplus of around 0.5 per cent of GDP in 2055, with net debt projected to be fully paid off by 2032.

    The second ‘currently legislated scenario’ has most in common with the way previous IGRs reported, and this projection of the size of the fiscal task is of much the same order as projected in the first IGR. However, in Peter Costello’s first IGR the projected fiscal gap was discussed in a much more measured way as an illustration of the future challenges, whereas in the latest IGR the presentation seems to be intended to scare us into accepting the Government’s ill-fated budget.

    Furthermore, the so-called ‘previous policy’ scenario which the Government wants to hang around Labor’s neck is a pure concoction. The starting position chosen for this scenario is after the Government had been in office for some time and had made a number of decisions, such as abolition of the mining and carbon taxes. That effectively means that at its starting point the Budget deficit for this scenario was already much greater than when Labor left office.  In fact the only true statement of the fiscal situation that the present Government inherited is the Pre-Election Economic and Fiscal Outlook report, which the two Secretaries of Treasury and Finance signed off on just before election day, and that report showed that in the Secretaries’ opinion the Budget would return to surplus as soon as  2016-17. In addition to the extent that the Budget has deteriorated since Labor left office there is every reason to think that Labor would have taken action to restore the fiscal position, as Labor has in the past.

    In short, this ‘previous policy’ scenario is quite disingenuous. Furthermore it is inconsistent with the Government’s professed desire to build the bi-partisan support which will almost certainly be required to restore a sustainable fiscal position.

    Restoring a sustainable fiscal position

    The Government’s ‘proposed policy’ scenario projects a return to a fiscal surplus by 2019-20, and this surplus continues to increase slowly to around 1.4 per cent of GDP in 2039-40. On what we presently know, the projected trajectory for that Budget balance seems reasonably in line with what is required to restore fiscal sustainability.  Again, however, the validity of this scenario depends upon the realism of the underlying assumptions, particularly as regards the policies required to achieve the projected Budget surpluses.

    Indeed a key rationale for each of the four IGRs that have been produced to date has been to examine the fiscal consequences of the projected ageing of the population, and the extent of that projected ageing has increased through successive IGRs as the baby boomer generation continues to age. Thus this latest 2015 IGR projects that in forty years time there will be just 2.7 people working for every aged dependent whereas today there are 4.5 people in the workforce supporting every aged dependent. And by comparison, the first 2002 IGR projected that there would be about 4 people working for each aged dependent in another forty years, compared to a bit more than 5 working people at that time.

    So, as expected, the projected aged dependency rate has increased as the time-period of the projections has been pushed out in successive IGRs, and other things being equal, the fiscal pressures expected from an ageing population should have also increased commensurately. But the preferred ‘proposed policy’ scenario in the latest 2015 Report projects much lower social spending on health, aged care and age pensions, and education than all the previous IGR Reports. Thus the latest IGR 4 projects increases of 3 percentage points for these social expenditures in the ‘preferred policy’ scenario, compared to around a 6 percentage point increase projected in IGRs 1 and 2, and a 4.5 percentage point increase in IGR 3.

    This much lower social spending projected in the latest 2015 IGR essentially reflects the policies of the Government that the Senate has so far refused to pass and which are the key feature of this ‘proposed policy scenario’. But the realism of these proposed policies must surely be open to question.

    First, health costs were projected to rise by 80 per cent over the following forty years to 7.1 per cent of GDP in IGR 3, but in the latest IGR 4 these costs are projected to only increase by 30 per cent to 5.5 per cent of GDP in 2055. The principal reason for this huge turnaround in projected health costs is the government’s plan to reduce the indexing of health payments to the States. Similarly changes to indexation arrangements are expected to bring big savings in education; especially in payments to State schools.

    Even if the Government does succeed in limiting its payments to the States to this extent, it seems most unlikely that the States could then restrain the expenditures commensurately on health and education. Instead this policy is a form of cost shifting to the States, and if the States have to wear it, then they will almost certainly have to raise additional taxation revenue to cover their higher share of health and education expenditures. The most obvious tax for the States to increase would be the GST, but that is a Commonwealth tax and the 2015 IGR is premised on the assumption that the revenue from Commonwealth taxes will not be allowed to rise above a ceiling equivalent to 23.9 per cent of GDP. If that ceiling is adhered to then the Australian Government would then need to find further expenditure savings on its own account if the States were allowed to increase their GST revenue to meet their increased funding share of essential health and education services.

    Second, another major source of savings critical to achieving the outcome of the ‘proposed policy’ scenario is the change in the indexation arrangements for various pensions and other social security payments so that they are indexed to consumer prices rather than to average weekly earnings[1]. Peter Whiteford of the Australian National University has shown that this will result in the single age pension falling from about 28 per cent to just under 24 per cent of average earnings by 2029. While if indexation back to wages were not restored then, by 2055 the single age pension would have fallen to around 16 per cent of average wages, a considerably lower level than any experienced in the last 50 years. The projected increases for many other social security payments, such as family allowances and Newstart, would lead to even more inequality, and this in an economy which already has a tendency to increasing inequality without the government withdrawing assistance to lower income people and their families.

    In short, there must be considerable doubt about the realism of this ‘proposed policy’ scenario.  Wage earners would continue to experience increases in their living standards and no increase in their taxes, but people on welfare and those who are sick would fall behind.  The consequences for our society would seem to make it most unlikely that these policies would be maintained for the next forty years. Instead many would say, as the Senate is presently disposed, that the route back to fiscal sustainability must lie elsewhere.

    Thus, unlike its predecessors, this latest 2015 IGR does not provide a useful basis for further planning and we all will need to consider alternative strategies.  There are other alternative ways of balancing the budget, and in addition the rate of economic growth could be enhanced modestly by further improvements to participation and productivity.

    These alternative proposals for restoring fiscal sustainability over time and further improving living standards will be the posted as part of a series of policy articles being planned for this blog to appear over the next few months. In addition, some previous suggestions for an alternative budget strategy were canvassed in articles I posted on 21-23 July 2014.

    Michael Keating AC was formerly Secretary of the Department of Finance and Secretary, Prime Minister and Cabinet.

     

    [1] The IGR assumes that this policy will only be maintained until 2028-29, although the Government’s legislation has no such sunset clause.

  • Alex Wodak. The current imbalance between public and private interests. 

    The public interest, meaning ‘the welfare or wellbeing of the general public’, has always competed with private interests. Furthermore, public and private interests will always be in competition. What is so unusual about the current tension is the extreme imbalance: these days, private interests almost always get what they want. The policy domination by huge companies and extremely wealthy individuals has severe adverse consequences for the community in areas such as health, social cohesion and the economy. The current extreme imbalance between private and public interests is now not merely an Australian phenomenon but is also international. Examples of this policy imbalance abound in Australia and include mining, alcohol, fast food, transport, taxation and gambling.

    The increasing dominance of private over public interests coincides with an increasing inequality of income and wealth. Inequality in Australia waxed and waned over the years with low levels reached in the 1970s. Inequality then began increasing in Australia, growing under Labor and Coalition governments. Inequality increased to even higher levels in the United States where the imbalance of private and public interests is even more evident and has had striking political repercussions.

    The health of Australians improved dramatically during the 20th century. For example, average life expectancy increased from about 45 years in 1900 to over 75 years in 2000. About 25 of the additional 30 years of life expectancy resulted from improvements in public health while advances in clinical medicine only added five additional years. Yet in Australia, 98 per cent of health expenditure funds clinical services with only 2 per cent allocated to prevention. In the first half of the 20th century, improved sewerage and drains substantially reduced deaths and disease. In the second half, the decline in smoking, improved diet and increased exercise were major factors improving health. Tobacco control has been a rare victory for a public interest David over a corporate Goliath. Yet in 2014, the federal government blocked the implementation of a national agreement to alert consumers to the potential health risks of some foods. Some powerful food producers were the only beneficiaries.

    The fate of the proposed Resource Super Profits Tax (RSPT) is another example of the recent dominance of private over public interests. In 2010, the federal government proposed the RSPT, modelled on the well-regarded Petroleum Resource Rent Tax levied on the off shore petroleum extraction industry, after accepting a recommendation from a review of Australia’s tax system. A distinguished committee chaired by a highly regarded Secretary of Treasury had carried out this review. Vociferous criticism from the mining industry including an effective advertising campaign followed, and after the deposition of the Prime Minister by the Deputy Prime Minister a heavily watered down and ineffective Minerals Resource Rent Tax (MRRT) replaced the RSPT. The then government contributed to its own problems through its political incompetence. Once again, powerful private interests got their way and the community lost.

    One of the common links in these examples is the development of monopoly, or near monopoly, arrangements used to generate vast wealth and thereby political power sufficient to extract huge economic rents.

    Taxation arrangements in Australia in recent decades including the abolition or reduction of inheritance taxes, capital gains taxes, private income and company tax, and generous concessions for superannuation and negative gearing, have benefited the wealthier members of the community and large companies.

    The coming to power of Thatcher in the UK and Reagan in the USA and the fall of communism in the USSR and its satellites increased support for the view that private economic interests are inherently more efficient than publicly owned enterprises.

    The replacement in China of a central command economy by a free market system which lifted hundreds of millions of people from poverty over the following decades seemed to exemplify the benefits of a free market economy with minimal restrictions for large companies and wealthy individuals. In the United States, major economists including Paul Krugman, Joseph Stiglitz and Jeffrey Sachs have warned that the currently high levels of inequality have corrupted the political system and there is increasing concern that with a radically extreme Republican Party often prepared to disregard the national interest the United States may have become ungovernable — surely a warning for Australia.

    What is to be done? The first step for those concerned by the increasing dominance of private and corporate interests over the public good is to articulate their views.

    Could a Public Interest Commission maintain a better balance in the future?  First some difficult questions would have to be answered. How will the public interest be defined and measured? Where will successful examples of a Public Interest Commission be drawn from? How will issues be selected and enquiries be conducted?

    And finally, what sort of Australia do its citizens want — an individualist Australia with marked inequalities, poor public services, choked roads and shrinking taxation on the American model, or a more collective and more equal Australia with less poverty, better public services but more taxation similar to the Scandinavian countries and Japan?

    A political correction to the current imbalance can only occur if Australians start to debate their values and visions. The political class can only do so much. Extensive polling shows that a majority of Australians want improved public services and are prepared to pay higher taxes to fund them. However, if large numbers of Australians want to see a different country emerge, they have to be prepared to work for these changes starting at the community level.

    Dr Alex Wodak AM, a physician, was Director of the Alcohol and Drug Service at St Vincent’s Hospital, Sydney from 1982 until he retired in 2012. His major retirement project is drug law reform.  Together with colleagues, Dr Wodak started Australia’s first needle syringe program and supervised injecting facility when both were pre-legal. He was also involved in establishing the National Drug and Alcohol Research Centre, the Australian Society of HIV Medicine and the NSW Users AIDS Association, an organisation for and by people who use drugs.  He is a Director of Australia21.

    This article is one of a series published by Australia 21 on the subject ‘Who speaks for and protects the public interest in Australia?’  For other articles published, see www.australia21.org.au.

     

  • Max Corden. Bring Back the Carbon Tax? 

     Mr Hockey has invited the Australian public to join in a conversation about the economy and budget issues. Here is my mildly radical contribution.

    There are two strong reasons for bringing back the carbon tax.

    Tony Abbott, when Leader of the Opposition, promised to repeal the carbon tax brought in by Prime Minister Julie Gillard.  And he has fulfilled his promise. Congratulations. Now circumstances have changed: the budget deficit and public debt have turned out to be important problems in the eyes of the Government because of the somewhat unexpected decline in export prices.  So Mr. Abbott or his successor as Prime Minister would be justified in re-imposing this tax. This is the first reason: the revenue from a carbon tax could make a significant contribution to dealing with the deficit problem. Of course, it would not be enough, and, as is well known, other measures or reforms to generate revenue for the government are available and are certainly needed.

    The second reason for restoring the carbon tax I shall discuss later. First, let us take a closer look at this tax, both as a burden and as a revenue raiser. 

    The Carbon Tax as a Burden

    Mr Abbott certainly convinced his fellow Australians that this tax would be a burden. So, I have taken a close look at his two key speeches, one in September 2011 when the bill to launch the tax was before Parliament and the other in July 2014 when the tax was repealed.

    In his view this was “just another big new tax.” But one could add that all taxes impose burdens or costs somewhere, whether on companies or individuals. One might reflect that, in current circumstances, because of the budget problem, a “big new tax,” and perhaps more than one, is just what doctor Hockey ordered.

    The carbon tax was paid by numerous businesses, but this did not mean that they carried the final “burden”. Mostly they would have passed it on to their customers, both households and businesses. Essentially it might be regarded as a fossil energy tax. When the tax was repealed Mr Abbott stated that households would benefit on average by $ 550 a year, with gas prices to fall by 7% and electricity prices by 9%.  His much-repeated and persuasive message was that the carbon tax raised the cost of living and this was “toxic” and “has been hurting ordinary people”. I suspect that his strong opposition to the tax was influenced more by the complaints of producers of emissions-intensive products – especially in the coal industry – than by complaints from average citizens. He also argued that a tax that raised energy prices would have led to job losses.

    All this seemed very persuasive. The persuasion was reinforced by the fact that earlier – essentially from 2007 to 2010 – electricity prices had risen sharply for other reasons, essentially to pay for the high costs of excessive investment in networks (poles and wires). In many minds those price rises were mixed up with the expected effect of the carbon tax. 

    Where did the Revenue go?

    Now, there is something very odd. In his two speeches Mr Abbott never refers to the government revenue that was raised because of the carbon tax. Did the tax not have any beneficial effects for households or businesses to compensate for the directly adverse effects of the higher prices of energy?  Where did this revenue go?

    In fact, some of it was used to compensate firms that competed in international markets while a substantial part compensated low income households through reductions in their income tax. The latter was an important element of the Gillard programme. What was taken out of the income stream by the carbon tax at one point was put back by the compensation at another point. If there were job losses at one end, there would be job gains at the other. Furthermore, reducing income tax, at least in the low income ranges, would increase the incentives to seek work, a highly desirable economic effect. Possibly some of the revenue led to greater government spending which benefited households. By ignoring all these offsetting revenue effects Mr Abbott was able to conclude that the carbon tax had a severely adverse effect on incomes and employment. Did he really believe this?

    At this point one might ask: what was the point of the whole exercise when funds are taken out of the economy at one end and put back at the other. The answer seems obvious. The carbon tax would produce market inducements that reduced harmful emissions of greenhouse gases. Of course, if one does not believe that climate change is a problem, or that Australia could make any difference, the whole business seems pointless. And if one assumes that nothing happens to the revenue, the tax would seem not just pointless but harmful.

    Use the Revenue to reduce the Deficit?

    Let me come back to my proposal that the carbon tax be reinstated. This time the whole of the gross revenue might be used to reduce the budget deficit. It would not finance increased government spending. How much money would be available? According to official estimates, in the first two years of operation the carbon tax raised $15.4 billion in gross revenue

    If the carbon tax revenue actually reduces the budget deficit without compensating tax or spending changes elsewhere the benefit would then be in the future (when debt is lower than otherwise) while the return of the “big new tax” would indeed impose a present cost. Mr Hockey would then get his deeply desired budget improvement and Mr Abbott could keep on complaining about the big new tax.

    But Mr Hockey would have to think about the current macroeconomic implications of improving the budget balance through higher taxes, possibly combined with reduced government spending. This would reduce total national spending (aggregate demand) and thus increase unemployment. In that case one would hope that the Reserve Bank of Australia would compensate by stimulating the economy through monetary policy, which in turn would induce depreciation of the exchange rate and thus make Australian industries more internationally competitive.

    Why Climate Change Matters

    Climate change is a world problem.  Those who believe that it is not really a problem are unlikely to be reading The Conversation, but if by strange chance they are among my readers, they should stop here. But, also, there are “realists” who do not deny climate change but who argue that Australia generates such a small proportion of the world’s harmful carbon emissions that we cannot make any difference anyway. So, why bother about a carbon tax? Here I wish to go beyond this view. We can make a difference, and, above all, it is in our interest that we do. The basic point is that we may not be able to directly affect world climate on our own, but it certainly will affect us, so we must try and affect the future world climate through influencing collective action among many countries.

    We would be affected adversely by climate change, and possibly are already. This effect could be severe. Therefore we should certainly try to make a difference.

    How would we be adversely affected?

    (a) First there is the direct effect on Australia, and especially its coastline. All the details can be obtained from CSIRO documents. Likely effects include reduced rainfall in southern Australia, more extreme fire weather, adverse effects on the Great Barrier Reef, on coastal populations, and so on. Particularly important for Australia are increasing heatwaves.  (Heatwaves have killed more Australians than all other natural hazards combined).

    Apparently we would be more adversely affected than any other developed country. In view of this, it is just amazing that our government has such a sceptical attitude to climate change compared to governments of many other countries.

    (b) Second, there is an important effect perhaps neglected by an inward-looking population. The rise of the sea level in association with severe weather events is likely to have a serious impact on islands and island countries. And there are many of these in our region, above all Indonesia with many of its population of 250 million people highly vulnerable, and, of course, the Pacific Islands. We may eventually have to cope with floods of climate refugees.

    What we must do in our Interest: the second Reason for returning to the Carbon Tax

    The moral is that for selfish reasons we need to use our maximum diplomatic influence to encourage other countries – and particularly the United States, but many others as well – to take the necessary measures to drastically moderate or avoid climate change. And we can only do this if we set an example ourselves. A restoration of the carbon tax would be the first step. Furthermore, our government should actively campaign for world-wide measures to mitigate or avoid climate change, and also finance appropriate research. In other words, in the national interest the government should completely reverse its current stance. Our current captain, no doubt well meaning, is steering the ship in the wrong direction.

    The simple immediate measure would be our return to the carbon tax. Of course, eventually this might evolve into an Emissions Trading Scheme (ETS). In both cases carbon emissions will be discouraged and the government will receive revenue.

     

    A very readable explanation of all the issues is in Ross Garnaut, The Garnaut Review 2011: Australia in the Global Response to Climate Change, Cambridge University Press 2011. See also John Quiggin et al, Carbon Pricing: Early Experience and Future Prospects, Edward Elgar, 2014, and John Freebairn, “ Carbon Price versus Subsidies to Reduce Greenhouse Gas Emissions,” Economic Papers, vol. 33, September 2014, pp 233-42.

    Max Corden is Professorial Fellow in the Department of Economics at University of Melbourne. This article was first published in The Conversation on 5 March 2015.

     

     

  • John Falzon  ‘Welfare reform’ but where are the jobs?

    If by “welfare” we mean giving assistance to those who don’t really need it and who are living off the public purse, then it is indeed time we had a comprehensive review of welfare.

    Sadly, but not surprisingly, the McClure Welfare Review was given the task of cutting social expenditure to those who actually do need it. If only we devoted as much effort to welfare reform for the corporates and the rich as we do for the people who struggle! If only we were able to admit that our irrational spending on those who need it least has to stop. It’s time for a review of corporate welfare.

    This, rather than blaming the unemployed for needing assistance, should be our focus. I suppose though that it depends on what you want to achieve. If, as a government, you are actually committed to ramping up inequality, then it will be no surprise that you cut social spending whilst leaving tax loopholes and concessions that benefit the rich largely untouched. If, on the other hand, with Oliver Wendell Holmes, you affirm that “Taxes are the price we pay for a civilised society”, then you will do all that is possible to put a civilised society for all ahead of profits just for some.

    While we are on the subject, it’s interesting how whenever, as a society, we ask large corporations to pay their fair share of tax we are accused of being ham-fisted and threatened with a capital strike but when we cut spending for the people who struggle, we are painted as being fiscally responsible. It is deeply unjust to rip $1 billion from social services. It is not unjust to make large multinational corporations pay their fair share of tax. There is no place in a progressive country for putting the boot into people who are low-paid or on income support, whilst protecting corporate privilege. Social security for people who are aged, young, unemployed, with caring responsibilities, or living with a disability, is something we should be proud of. Welfare for multinational corporations or high-wealth individuals, via revenue foregone, on the other hand, is something we need to stop.

    The McClure Review is not without some good ideas, but it was always predicated on two false assumptions: that we need to cut social expenditure and that unemployment is fundamentally a problem that is addressed at the individual, rather than the structural, level. By focusing, for example, on “encouraging” people to find work, there is an almost dogmatic assertion that people actually choose to be unemployed. By talking about making some of the requirements stricter or the compliance harder, we are merely emulating the US approach that unemployment is best addressed by threatening people with even deeper poverty.  Poverty is not a personal choice. Unemployment and underemployment are not personal choices. Forcing people off a social security benefit does not equate with employment: it equates with deeper poverty. You don’t help people into jobs by forcing them into deeper poverty.

    What we are looking for is a plan for jobs. What we are left with is a long-term attempt to reduce social spending. Government will not create jobs by cutting spending. The people who use the social security system in Australia are people we should be investing in and supporting. The people who are unemployed are not the problem. The problem is that there are not enough jobs. With only one job available for every thirteen jobseekers (based on ABS data on labour underutilisation) it is clear that the starting point should be a jobs plan, including economic development in areas of high unemployment combined with access to high quality education and training. It also means addressing the clear inadequacy of the Newstart payment, which sits at only 40 per cent of the minimum wage and is so low that it has become an obstacle to participation.  We repeat our call for an immediate $50 a week increase to the Newstart payment and the indexing of all payments to wages rather than CPI. A good social security system is meant to prevent poverty, not to humiliate people.

    The St Vincent de Paul Society supports an approach which actually invests in people and supports them so that they can participate in society and, where appropriate, in paid employment. We are concerned by the potential impact of the proposed tiered Working Age Payment. We are also alarmed by suggestions that support for people living in social housing could be undermined. As for the suggestion that people under the age of 22 should not receive independent income support, we are left wondering how they are meant to survive.

    Life has taught us that an injury to one is an injury to all. Solidarity is our secret weapon in the struggle against inequality. We will win in our struggle against inequality by defending and extending the gains we have made in the areas of universal health, free education, and a social security system that keeps people out of poverty and supports them to live with dignity. We are also desperately in need of a national plan for full employment (remember the 1945 White Paper on Full Employment in Australia?), including an economic development component and, very importantly, a plan to ensure that no one misses out on social and affordable housing. Sticks on the backs of the unemployed will not create jobs. Neither, for that matter, will the carrot of encouragement. It is the role of government to allow society to achieve collectively what we cannot achieve individually. Governments must do what markets cannot. Markets are a very useful mechanism for generating profit, but woeful at guaranteeing equity and fairness.

     

    Dr John Falzon is CEO, St Vincent de Paul Society, Australia.

     

     

     

    (For an excellent analysis of our current jobs crisis, especially in terms of youth unemployment, see the work of Professor William Mitchell:  http://bilbo.economicoutlook.net/blog/?p=30165 )

  • Graham Freudenberg. Gough Whitlam Commemorative Oration.

     You will see below what I think is a remarkable speech by Graham Freudenberg about Gough Whitlam’s contemporary relevance.  This oration is much longer than I normally post on this blog, but it is an outstanding oration which I am sure you will enjoy.  The Whitlam Institute will also be publicising this oration.  John Menadue

    THE WHITLAM INSTITUTE

    GOUGH WHITLAM COMMEMORATIVE ORATION

    “Contemporary Relevance, comrade”:

    Gough Whitlam in the 21st century

    Graham Freudenberg

    St Kilda Town Hall, Melbourne, 4 March 2015

     

    Let me begin by doing what I did for the best part of my career, and re-cycle a speech by Gough Whitlam.  It was his first major speech in the House of Representatives on international affairs, in days when they actually debated foreign policy in the Australian Parliament – on 12 August 1954.  That was another world.  Yet this speech goes to the heart of my assertions about the contemporary relevance of Edward Gough Whitlam.  In style and substance, in his zest for the cut and thrust of parliamentary debate, for the sweep of its ideas, its challenge to prevailing orthodoxies – and for its optimism – it is quintessential Whitlam.  He made the speech soon after the Geneva Conference in 1954 had given the West a new chance for good sense over China and Vietnam; instead, alas, the lost opportunity of Geneva became a disastrous wrong turn for the United States and Australia. Whitlam had been a member of parliament for less than two years.  His star was just rising in the Labor Party, itself on the threshold of the Great Split.  I’ll quote just a few of his opening lines, to give the flavour:

    In the exciting and rapid movement of events during the last few months, the Minister for External Affairs [Mr Casey] has twice circumnavigated the globe in the steps of his model, Mr Eden, and his master, Mr Dulles [UK Foreign Secretary and US Secretary of State respectively].  Though the Minister saw fit to make statements to the newspapers in the United States of America and in other parts of the world, he did not say anything to the Australian press.  The only Minister who has seen fit to make any statement on international affairs has been, of all people, the Postmaster General (Mr Anthony)  [Doug Anthony’s father, that is], who three weeks ago addressed the annual conference of the Queensland branch of   the Australian Country Party.  In haranguing that rally of rustics, the Postmaster General declared that we Australians cannot live in peaceful co-existence with the Communists in this cold war.  That pronouncement, fortunately, was in direct contradiction of statements that had already been made by President Eisenhower, of the United States of America, and Sir Winston Churchill, the British Prime Minister.  The declaration of the Postmaster General has been emphatically repudiated in this House by the Prime Minister [Mr Menzies] and the Leader of the Opposition [Dr Evatt].  As a consequence of that rash utterance, the Postmaster General, whose health in recent months was deemed to be rapidly qualifying him for a diplomatic post, has rendered himself persona non grata  to every head of State except President Syngman Rhee of the Republic of Korea, and Generalissimo Chiang Kai-shek, the leader of the Chinese Nationalist Government [on Formosa].

    When, more than a decade later, I came to read all Whitlam’s early speeches with a professional eye, time and again I found myself thinking “I wish I could say things like that”.  So I did.

    But what could be the possible relevance of a speech made by a Labor backbencher more than 60 years ago, when Churchill was still Prime Minister of Britain and when Menzies still had more than eleven years to go as Prime Minister of Australia?  Well, this was the speech in which Whitlam first called for recognition of the People’s Republic of China, nineteen years before he achieved it.  In particular, he insisted that China’s sovereignty over Taiwan (Formosa) must never be allowed to become a cause for war with China, inevitably a third world war, inevitably a nuclear war.  Whitlam was daring to assert that the views and interests of Australia might not always be the same as those of the United States.  His propositions will be as relevant to our relations with China and the United States over the next 60 years as they were 60 years ago.  Further, he made an eloquent connection between hopes for democracy in our region, then in the throes of decolonisation, and the preservation and enhancement of parliamentary democracy in Australia – his life-long cause, from which all else flowed.  It was a speech marked by his special capacity to make connections between the wider world, the region around us, and Australia’s own standing and conduct.

    And this speech, not only in its content but in its approach, attitudes and insights, the breadth of vision enhanced by his attention to detail, provides a sub-theme for everything I say tonight:

    Gough Whitlam’s contemporary relevance lies not only, or even so much, in the actual policies and issues he placed on the Australian political and social agenda, but in the educative process, based on reason, relevance, knowledge and foresight, by which he reached them.  And perhaps most relevant of all to these times, for all of us as Australians, his challenge to conventional wisdom, the prejudices and fears of his times.

    And that included emphatically obsolences and obstructionism in Labor thinking.  I don’t pretend to be able to answer the question: “What would Whitlam do if he were the Labor leader today?”  I’m certainly not purporting to tell Bill Shorten and his colleagues: “This is how Gough would do it”.  But perhaps I can shed some light on what I believe would be his approach and attitudes to the very complex questions facing Australia and the Labor Party in today’s “rapid and exciting movement of events”.

    There is no place more fitting to do this than Melbourne.  I take the opportunity to make amends for an omission in my accounts of the life and times of Edward Gough Whitlam.  In my brief eulogy at the Sydney Town Hall on 5 November last year, for instance, I identified the central importance of his relationship with Werriwa, for 25 years his electorate in the outer Western suburbs of Sydney.  And he himself always acknowledged the impact of being a teenager in Canberra, as it struggled to grow into the national capital after the move from Melbourne in 1927.  But it should never be overlooked how much of Melbourne there was in Gough Whitlam.  It is not just the fact that he was born here – on 11 July 1916 – and spent the first five years of his life here.  The greatest single influence of his life was his father, Harry Ernest Frederick Whitlam, later Commonwealth Crown Solicitor; and Fred Whitlam was Melbourne through and through.  His influence on his son was steeped in the old Melbourne liberal/radical tradition.  Its strength, paradoxically, retarded the early growth of the Labor Party in Victoria. There was a remarkable revival of that tradition through the flourishing of the Fabian Society in the late fifties, sixties and beyond; and the Fabian relationship with the rise of Whitlam is an important part of the larger story.  “Among Australian Fabians, I am Fabius Maximus”, he said.  Though I myself believe the title properly belongs to Race Mathews.

    Gough returned to Melbourne, in thought, towards the very end.  When much in that mighty memory was fading, he would recall to his faithful visitors to his William Street, Sydney, office, like John Faulkner and John Menadue, that when he was 17 or 18 he took his grandmother to the new Shrine of Remembrance in St. Kilda Road and read out to her – she was nearly blind – the name of the battlefield in France where her son, his uncle, had died.

    Even at the time of Gough’s death, the comment was still being made that it was strange, with his background, he should have become a Labor leader.  There used to be Tories who regarded him as a class traitor.  The truth is, with his upbringing, with such a father and his values, Gough Whitlam could never have been any other than Labor, in the Australian context.

    In November 1973, in the glow of his first year in office, Whitlam delivered the Robert Garran Memorial Lecture in Canberra.  His father had delivered the inaugural Garran Lecture in 1959, one great public servant honouring another, who had been his Melbourne mentor.  Whitlam quoted his father, who was speaking of Australia’s role in the United Nations:

    The task before Australia is honourable, and its efficient discharge would make for a dynamic peace; to it, all the resources, skills and energy that Australia can command deserve to be committed.  The honourable task, however, could become majestic, and infinitely inspiring, and the peace could become creative, deep and rich, and enduring, if there be added what I have termed Excellence, Excellence in all its fullness.

    That is Gough Whitlam quoting his father.  But he might just as well have been quoting himself.  Perhaps, given the closeness of their relationship, he was.

    I acknowledge my own debt to Melbourne.  Melbourne made me.  I arrived here as a 20-year-old reporter for The Sun, via newspapers in Brisbane, Sydney and Mildura, in 1955 – the year of the Great Labor Split and the beginning of the Bolte era in Victoria.  Anyone who believes that the fifties were dull wasn’t there.  I missed the transformational event of the 1956 Olympic Games because I had taken myself off to London for a year.  It was a watershed year: Khrushchev’s not-so-secret speech in Moscow denouncing Stalin; Nasser’s nationalisation of the Suez Canal and the Suez crisis; the Soviet invasion of Hungary.

    The Suez crisis was my political Road to Damascus.  Returning to Melbourne in 1957, I immediately joined the East Melbourne branch of the Australian Labor Party.  Arthur Calwell, then Deputy Leader of the Opposition under Evatt, was the member for Melbourne.  In 1961, I was given the opportunity of a lifetime when, by a wonderful combination of friends and flukes, I became Press Secretary to Arthur Calwell, by now the Leader of the Opposition,  and in 1967, to his successor Gough Whitlam.  When Whitlam made his famous or notorious “The impotent are pure” speech before the jeering delegates to the Victorian Labor Conference at the Melbourne Trades Hall in June 1967, Calwell watched the performance from the gallery and said to me in the vestibule afterwards: “You won’t be working for your new boss long now”.

    “Throughout my public life”, Whitlam said on the 30th anniversary of the It’s Time election, “I have tried to apply an over-arching principle and a unifying theme to all my work.  It can be stated in two words: contemporary relevance.  It was the fundamental test I applied, in particular to the development of Labor policy in the years before 2 December 1972.  There is a case to be argued that my government faltered whenever we lost sight of the principle or allowed the rush of events to subsume them.”

    Among the many fine and true things said at the Sydney Town Hall, I want to focus on a point made by Tony Whitlam.  He said that his father believed deeply in a strong two-party system.  The whole thrust of Whitlam’s career was to further his determination that the Labor Party should remain one of the two dominant forces within our parliament, either in government or able to form government, in its own right.  He saw strong, effective parties as the mainstay of parliamentary democracy.  The future of the two-party system and Labor’s role within it is now the big political question facing Australia today, not just the Labor Party.

    May I say here how much encouragement we draw throughout Australia from the victory of Daniel Andrews and the Labor Party in Victoria, so soon after Gough Whitlam’s death.  Like Neville Wran’s victory in New South Wales six months after the Dismissal, it had a galvanising effect and renewed our sense of what is possible.  As to the Queensland result, well, it shows that anything is possible.

    In his first statement on becoming Leader of the Federal Parliamentary Labor Party on 8 February 1967, Whitlam said:

    For the Labor Party, what is clearly at stake is its future role within the Australian parliamentary system …. Our actions in the next few years must determine whether it continues to survive as a truly effective parliamentary force capable of governing and actually governing.

    Nearly nine years later, almost on the eve of the Dismissal, in the middle of his tremendous battle against the Senate, the ultimate challenge to the very legitimacy of a reforming Labor Government, Whitlam delivered the Curtin Memorial Lecture at the ANU in Canberra (29 October 1975).  Speaking of his work before 1972, he said:

    I addressed myself to three principal tasks: to develop a coherent program of relevant reform; to convince a majority of Australians that those reforms were relevant to their needs and their lives; and to convince the Labor Movement as a whole that the parliamentary institutions were relevant in achieving worthwhile reform.

    “The great organisational battles between 1967 and 1970, particularly in Victoria”, he said, were essentially about that third task:  “It was the toughest of all”.

    Keeping bright the Whitlam legend does not require manufacturing myths about him.  The stakes in Victoria were high; and while both sides invoked high principles, in the end the resolution of the conflict involved number-crunching of the roughest kind.  Whitlam was not particularly adept at that game, but accepted its necessity.  He largely left it to others – Lance Barnard in his rise to the leadership; Rex Connor in his self-imposed contest for the leadership with Jim Cairns in April 1968; Clyde Cameron in the reconstruction of Victoria in 1970.

    So I want to emphasise that electoral and political calculations figured as largely with Whitlam as any other political leader.  It was not all altruism and crashing through.  To gloss over Whitlam as a practising, party politician, working the system with the best of them, is the surest way to make him irrelevant.

    Whitlam set out, from the first, to combat the defeatism which had settled on much of the Labor Party, particularly in Victoria.  Political necessity drove his defiant speech to the Victorian ALP Conference in June 1967:

    We construct a philosophy of failure which finds in defeat a form of justification and a proof of the purity of our principles.  Certainly, the impotent are pure ….. Let us have none of this nonsense that defeat is in some way more moral than victory ….. I did not seek and do not want the leadership of Australia’s largest pressure group.  I propose to follow the traditions of those of our leaders who have seen the role of our party as striving to achieve, and achieving, the national government of Australia.

    Whitlam was especially infuriated by the self-serving claim that the bosses of the Victorian Central Executive were the principled guardians of Labor’s opposition to Australian involvement in the war in Vietnam.  In his landmark speech of 4 May 1965, Calwell had explicitly acknowledged the unpopularity of Labor’s position, to be met, in what seemed on the day a devastating reply by Menzies, with the sneer “If I might end on a horribly political note, it is a good thing occasionally to be in the majority”.  This was the same speech in which Menzies’ total justification for the war was that it was “part of the downward thrust by China between the Indian and Pacific Oceans”.  By such simplicities did Menzies reign supreme.  After the debacle of the 1966 election, ostensibly because of Vietnam, but more because of the dire state of the Labor Party itself, Melbourne became the heart and soul of the Moratorium Movement under the memorable leadership of Jim Cairns.

    Whitlam, by contrast, antagonised the Labor Left by his dismissive attitude towards the Moratorium Movement.  He told that Victorian Conference in June 1967 that protests “would not save a single Australian life or shorten the war by a single day.  Our consciences should not be so easily salved.  The present government opposes all moves which might bring about negotiations, and is the first to applaud and endorse escalation of the war.  Therefore our aim must be to replace that government.”

    But Vietnam was not really the divisive issue for Labor.  The most potent source of division was far older – over a century old in fact.  It was the issue of State Aid for non-government schools, meaning, in practice, the Catholic parish school system.

    It must be hard for any Australian under 60 to grasp fully the sectarian bitterness and the political explosiveness surrounding this issue.  Even the phrase itself – “State aid” – barely registers today.  The Bishops and the Church, even with so powerful an advocate as Archbishop Mannix, had failed utterly to dent the bipartisan intransigence against State Aid – the Liberal Party still essentially a Protestant  party; the Labor Party, its traditional Catholic support notwithstanding.  The unravelling came after the Split when the breakaway DLP put a pro-State aid plank in its platform.  From then on and for the next decade, the Labor Left made opposition to State Aid the test of Labor orthodoxy.  This was the issue which was to provide Whitlam with a platform to secure representation for the parliamentary leadership on the Labor Party’s Conference and Executive, ending the “36 faceless men” controversy.    It produced Whitlam’s outburst against “the 12 witless men” of the ALP Federal Executive, and his near-expulsion from the party in 1966.  It produced his triumph at the 1969 Federal Conference in Melbourne which adopted his ground-breaking proposal for the Schools Commission, granting aid to all schools – government and non-government alike – on the basis of needs.  It produced the last ditch defiance of the old VCE, sabotaging Labor’s 1970 State campaign, and perversely giving Whitlam unmistakable grounds for Federal intervention; which in turn paved the way for Victoria’s decisive role in electing the Whitlam Government in 1972 and saving it in 1974.

    What were the qualities that rewarded Whitlam with such success after these long years of turmoil and confrontation?  Perseverance, of course.  Stamina, of course.  But there was something else – a characteristic approach to political problems, and his way of arguing them out.  “Only connect”, E. M. Forster wrote, and Whitlam was the master of making connections – from the particular to the general, linking the local with the regional, the regional with the national and the national with the international.  Or reversing the process, as when debating standards for education, health, housing or transport, he would start from the carefully crafted formula: “Countries with which we would choose to compare ourselves”.  Sometimes, this left only Canada.  In the case of State Aid, he comprehensively connected the whole education issue with party reform, policy reform and electoral success – “the party, the policy, the people” in John Menadue’s 1967 formula.

    I see this making of connections as the essence of the Whitlam approach and the key to his contemporary relevance.  Remarkable, too, was his melding of personal experience with public policy.  In her truly great biography, Jenny Hocking describes his learning curve on aborigines when he witnessed their treatment in Queensland and the Northern Territory during his wartime years in the RAAF.  I have already mentioned the connection between Whitlam, the member for Werriwa, and Whitlam’s policies on “Schools, hospitals, cities”, to use his shorthand for his Program, his deep understanding that Australia is a nation of immigrants, and all the opportunities and obligations which flow from that central fact, his passion for electoral reform, one-vote, one-value, and even the national sewerage program.  He himself dated his determination to modernise the Constitution from the failure of the 1944 referendum, broadening and deepening with his service on the Joint Parliamentary Committee on Constitutional Reform.  This seminal experience led him to focus on the connection between the Constitution and the Labor Platform.  He was exasperated by the way the Labor Party had allowed the High Court rejection of bank nationalisation under Section 92 in 1948 to become an excuse for policy stagnation.   He later put his attitude in this way:

    I was concerned by the way in which the Labor Party’s failure to move on, to look ahead, to attempt to find new ways towards reform, was short-changing the Australian people and short-changing the Party itself.  The Party became obsessed with the idea that rather than being about revival for the future, its purpose was to return to a more comfortable past – not renovation but mere restoration.  As a result, both the achievements of the past and the hopes for the future receded equally.  The Party stagnated and the Platform was stultified.

    There, in its most striking form, is Whitlam’s continuing challenge – to modernise the Party, to modernise the Platform, to modernise the Party’s place in a modernised Australia.  He wanted, of course, to modernise the Australian Constitution, and no Australian leader worked harder to achieve change by referendum.  Right to the end, he never gave up on this, despite the overwhelming evidence that change by the direct referendum route is almost always foredoomed in Australia.  Yet despite this, he achieved real change in the spirit of the Australian Constitution, in its interpretation and in the application of the Constitution as it exists to the implementation of Labor policy.  He never succeeded in altering the Constitution by a single line or letter, but he enlarged the Constitution like no other leader.  As in so much else, Whitlam was the Great Enlarger.

    He did it in three ways.

    First, by pointing the Labor Party to the parts of the Constitution which were relevant and achievable.  As he said in 1961, in his first Curtin Memorial Lecture:

    In our obsession with Section 92, which is held up as the      bulwark of private enterprise, we forget Section 96, which is     the charter of public enterprise.

    In that speech, too, he derided the most sacred of Labor’s cows, the socialist objective, as “weak, defensive and apologetic”.  At the same time, he was not apologetic about calling himself a socialist and was, in fact, the last Labor leader to do so.

    Second, in government, he widened the Constitution and its interpretation whenever his legislation was tested in the High Court, starting with the Hamer Government challenge to the Australian Assistance Plan in 1974.  He was justly proud of the fact that no Whitlam Government laws were ever held to be unconstitutional.

    Thirdly, most relevant of all, he enlarged the Australian Constitution by the use of the external power, and by enshrining key laws within covenants of the United Nations and the International Labor Organisation.  The Racial Discrimination Act is an outstanding example.

    And here I make the claim that the connections Whitlam made between what we do here and our standing in the world represents his distinctive expression of Australian patriotism – rational, authentic and deep patriotism.

    Let me give a specific example.  In two visits to Papua New Guinea in 1970 and 1971, as Opposition leader, he proclaimed independence for PNG by 1976.  In Government, he advanced the time-table by a year.  The independence ceremony in Port Moresby in September 1975 was the last time Sir John Kerr and Whitlam appeared in public together.  During the 1970 visit, his meetings with Michael Somare were tracked by ASIO.  After he addressed 10,000 Tolai at Rabaul, Prime Minister Gorton said he would have “blood on his hands” if there were any violence on the Gazelle Peninsula.  The Minister for Territories, CEB Barnes, thought PNG might be ready for independence in 25 to 100 years.  This was probably majority opinion in Australia.  Seven Australian Prime Ministers attended Whitlam’s Memorial on 4 November 2014 – with five Prime Ministers from PNG, including Michael Somare.

    How did Whitlam turn around Australia’s stance so completely, so quickly?  I remember vividly the day in Port Moresby in January 1971 when he dictated the thoughts which we worked up as the definitive statement on PNG independence:

    All Australians must now realize how damaging and    dangerous a reputation Australia’s present policies produce.  What the world sees about Australia is that we have an aboriginal population with the highest infant mortality on earth, that we have eagerly supported the most unpopular war    in modern times on the ground that Asia should be a      battleground for our freedom, that we support the sale of arms to South Africa, that the whole world believes that our immigration policy is based on colour and that we run one of the world’s last colonies.  We may profess our good intentions      and feel that we are victims of special circumstances but the combination of such policies leans heavily indeed on the world’s goodwill and on Australia’s credibility.

    The true patriot therefore will not seek to justify and   prolong these policies but will seek to change them.

    It is upon his determination to protect and advance Australia’s reputation and standing in the world that I stake my strongest claim for Whitlam’s contemporary relevance.  I deeply believe that if the Labor leadership had taken its stand clearly on Australia’s international reputation and international obligations on refugees from the beginning, in 2001, we would not have had fourteen years of this malignancy, eating away at our national self-respect.  Of course, Australians care about “who comes here and the circumstances in which they come”.  But, given leadership, they do care for Australia’s good name in the world.  How else were Whitlam and Don Dunstan, together with quite small public interest groups in the universities, churches and unions, able to persuade the Labor Party in 1965 to abandon its most cherished tradition and Australia’s deepest fears embodied in the White Australia Policy?

    So I stress the importance of making connections in Whitlam’s approach to policy.  But I am bound to acknowledge that there were disconnections when it came to implementing policy in government.  The connections were Whitlam at his most constructive; the disconnections the most damaging.  No appraisal of his contemporary relevance can omit the failures, and the lessons to be learned from them.

    In his book The Whitlam Government, Whitlam himself makes a significant admission.  The matter-of-fact way he puts it masks the pain it cost him to make it.  He wrote (p.195):  “The chief economic failure of my Government resulted from the wage explosion of 1974.  In part, our failure was a failure of communication, our failure to persuade the trade union movement to accept the central concept of Labor’s program.”

    He then spelt his definition of the meaning of equality in modern Australia: “That central concept was this: in modern communities, even the wealthiest family cannot provide its members with the best education, with the best medical treatment, the best environment, unaided by the community.  Increasingly, the basic services and opportunities which determine the real standard of life of a family or an individual can only be provided by the community and only to the extent to which the community is willing to provide them.  Either the community provides them or they will not be provided at all.  In the Australian context, this means that the community, through the national Government, must finance them or they     will not be financed at all.”

    That is the bed-rock of the Whitlam Program, with its over-arching theme of a more equal Australia.  Then comes his painful admission: “I have to acknowledge that this philosophy was never really accepted by the Labor movement of Australia at any time after the election of its own Labor Government.”

    In a generous review in The Age, Sir Paul Hasluck described the book as “the longest trumpet voluntary in political literature”. But it seems to have escaped Sir Paul that there could hardly be a more mortifying admission than that the very core of Labor support had not accepted the relevance of the Whitlam Program to its immediate concerns.  By contrast, the Hawke and Keating Governments succeeded in persuading the unions to accept the concept of a social wage, and, through the Accords, made it the basis of their transformation of the Australian economy.

    Whitlam notoriously said: “I don’t mind how many prima donnas there are in my Cabinet, as long as I’m prima donna assoluta”.  It was a throwaway line that actually highlights both the strengths and weaknesses of the Whitlam style of government: individual brilliance against collegial disarray.  There was a serious gap between the primacy he gave to Parliament, to parliamentary government on one hand, and the operation of its most distinctive feature, the Cabinet, the great engine of parliamentary government.  Cabinet embodies the two principles that make parliamentary democracy work effectively – Cabinet solidarity, and answerability to Parliament.  Cabinet is the grand committee of the nation.  Bob Hawke’s superb chairmanship skills made his Cabinet the most successful in our history.  A properly-run Cabinet would not have enmeshed the Whitlam Government in the toils of the loans affair.

    Nevertheless, while the orchestration was sometimes discordant, the Whitlam Government was not a one-man band, although Gough himself scarcely discouraged the notion.  “What would happen if you were run over by the proverbial bus”, Mike Willesee asked him in 1974.  “In the light of my government’s public transport reforms, that is highly improbable”.  But the free rein Whitlam gave his Ministers did become the basis for its record of achievement.  The one thing he expected was that they would act in the spirit of the Program, especially as set out in the It’s Time Policy Speech.  As Kim Beazley Snr said: “The Platform is the Old Testament; the policy speech is the New Testament”.  He was only half-joking.

    There will never be another Policy Speech like it.  At least I devoutly hope so, because I hope that the conditions which produced it will never be repeated.  That is, I hope fervently for the sake of Australian parliamentary democracy that the Australian Labor Party will never again be out for 23 years, or anything like 23 years.  We cannot fully understand the nature, content and purpose of the It’s Time  Policy Speech, unless we place it firmly in the context of those 23 years.  Nor, for that matter, can we fully understand the conduct and fate of the Whitlam Government without understanding the sense of urgency and expectation those lost 23 years produced.

    There were outstanding Ministers.  Think of Bill Hayden, who built Medibank – with its vital principle of universal access to health care – so strong that it defied seven attempts by the Fraser Government to dismantle it and enabled the Hawke Government to restore it as Medicare.  The attacks on its basic principles by the present Federal government are, of course, part of its current turmoil.  Contemporary relevance indeed!

    Again, Hayden had progressed far towards establishing a national superannuation scheme.  Keating accomplished it, and Labor’s role as the custodian of superannuation, and its true principles, remains, or should be, one of its greatest electoral assets.

    Think of Lionel Murphy, whose transformational law reforms constitute almost a parallel program.  His concerns about the accountability of the national security apparatus remain a question of fundamental relevance to Australian democracy.

    Or think of Al Grassby.  For dismantling White Australia (“Give me a shovel and I will bury it”, he said to a sceptical reporter in Manila); for establishing multicultural Australia, he paid a high political price.  He lost his seat in what Whitlam called Australia’s first overtly racist campaign in 1974.  We may think we have come a long way since 1974.  On the other hand, we may think that the story has deep contemporary relevance, certainly in terms of the need for unremitting vigilance in the work of building a more inclusive and tolerant Australia.

    I think, in particular, of Tom Uren, who breathed life into the most original and wide-ranging of all the Whitlam concepts, really the heart of the Whitlam project – national involvement in cities and regional centres.  The restoration of his Department of Urban Affairs is again urgent and relevant to the Australian people in almost every aspect of their daily lives.

    These examples remind us of a largely neglected, if not forgotten, aspect of the Whitlam project – how much, both in development and implementation, the Whitlam Program was a collective effort, how much he sought and welcomed the ideas and advice of others, inside and beyond the Labor Party.  Many years later, I suggested that he should acknowledge that “the Program did not spring, like Minerva, fully armed from Zeus’ brow”.  He agreed entirely, but insisted that he was not going down to posterity confusing the Greek and Roman gods.  Gough thought Zeus more appropriate than Jupiter, so Minerva had to give way to Athena.

    This aspect of the Whitlam project, as a cooperative and collaborative effort, will, I believe, become increasingly relevant to Labor’s mission, as Australia moves into a more complex era, with its communities more dissociated, its voters more volatile, its competing interests more vocal, its public discourse more discordant, if not debauched, its media ever more pervasive.

    More than a century ago, Alfred Deakin complained about the impossibility of governing “with a reporter at one’s elbow”.  We may speculate how Gough would have coped, in a world of instant response, endless spin, the ten second grab and the cacophony of self-appointed pundits.  I think I know the answer.  Brilliantly.  Three reasons: He was the master of the one-liner before the term was invented.  He would have dominated the mainstream media by open, long and frequent press conferences.  And, above all, he would have refused to relegate Parliament to its present humiliating role as an almost incidental channel of political communication.

    Almost our last collaboration, stretching across more than 40 years, was the Foreword to Troy Bramston’s splendid collection, The Whitlam Legacy.  Gough knew it would be his last serious word on Australian politics:

    May I make one valedictory point: never forget the primacy of Parliament as the great forum for developing, presenting and explaining policy.  This seems to me the best response we can make to the unprecedented demands now made on our leaders and representatives by the relentless news cycle, 24 hours a day, seven days a week.  If we develop, define and defend our policies thoroughly before their implementation, we will be much less likely to be blown off course by the accidents and aberrations inseparable from modern political life.  And Parliament is by far the best place to achieve it.

    This was the precept and practice of a life time.

    Parliament is, or should be, a marvellous resource, and it has been the anchor of our national life longer than almost any country in the world and, by the standard of the suffrage – the right to vote – more democratic longer than any.  But if the Labor Party is to survive as the prime mover in the development and implementation of the public polity – the party of new ideas – its policy makers will need to draw on all the available resources, reaching out beyond its own resources and ranks.  This points to a future role for independent but dedicated resources like the Whitlam Institute itself.  This was Gough’s own deep hope as he watched the Institute grow during his rich and mellow autumnal years.

    Partly because of his long and active public life, there is a timelessness about Gough Whitlam’s legacy, extraordinary for a working politician who reached the heights of his achievement forty years ago and whose Prime Ministership lasted only three years.  But I always emphasise that Gough Whitlam was also very much a man of his time.  His vision of a more equal Australia, a more independent Australia, a more inclusive, generous and tolerant Australia, a more forward-looking and outward looking Australia, belongs to all time.  But the means by which he sought to advance Australia towards that vision reflected his own times, the influences, pre-occupations and demands of his time, the political, constitutional, social and economic opportunities and constraints of his time.  Hence his insistence on contemporary relevance.  Here in St. Kilda Town Hall, closing his great campaign in 1972, he invoked Ben Chifley’s “light on the hill”.  His program was not the light on the hill; but he shone a bright light along the path.

    Far be it from me to presume to put words into Gough Whitlam’s mouth, at least now that he cannot speak for himself.  But I do believe that his first advice to his successors – the Labor leadership, the members, supporters and well-wishers – as they pursue their tasks of shaping and re-shaping Labor policies, Australian policies, for the 21st century, in times and circumstances every bit as daunting and challenging as those he faced in his time – I believe that his watchword would be for them, as his instruction was so often to me:

    “Contemporary relevance, comrade”.

     

  • Andrew Leigh. The remarkable persistence of power and privilege.

    If you want to know who made up Australia’s elite in the nineteenth century, a useful place to look is the Australian Dictionary of Biography. In its many volumes, you’ll find business leaders, scientists, media barons and politicians who have featured among the upper echelons of Australian society.

    Now, suppose we take the first cohort of significant Australians – those who died before 1880 – and identify those with unusual surnames like Ebden orMaconochie. People with those names were overrepresented among the elite in the nineteenth century. Are they still at the top of society, or are they mixed through?

    The answer to this question will depend on the level of social mobility we have in Australia. In a very mobile society, privilege dissipates quickly. Children of doctors become labourers, and children of cleaners become lawyers. “Class-jumping” is the norm. Conversely, in an immobile society, we should expect to see privilege perpetuated across generations. If wealth can easily be passed down to one’s children, if education is costly, and if jobs are based on old school ties rather than ability, then the same surnames will stay at the top across generations.

    For Australia, it turns out that if we look at the register of modern-day medical practitioners, we find the privileged names of the nineteenth century overrepresented by a factor of nearly three. In other words, if your ancestor was at the top of Australian society six generations ago, you are three times more likely than the average Australian to be a doctor today.

    In The Son Also Rises: Surnames and the History of Social Mobility, economist Gregory Clark uses rare surnames to learn more about the extent to which societies are fluid or static. Take the case of Samuel Pepys (1633–1703), the famous diarist who was secretary of the English Admiralty. Pepys has been a rare name since it entered the ranks of the elite in the late 1400s. And yet in the past 500 years, Pepyses have attended Oxford or Cambridge universities at a rate at least twenty times that of the general population. On average, those of them who’ve died over the past decade left wealth of at least five times the British average. Four of the eighteen living Pepyses are medical doctors. Only in a society with extremely low levels of social mobility would we expect a name to persist among the elites in this way.

    Analysing mobility in medieval England, Clark finds that people with names derived from jobs (Cook, Butler, Thatcher and so on) were more likely to move upwards, while those with names that derive from towns (including Baskerville, Pakenham and Walton) tended to move downwards. And not much changed after the industrial revolution. Surnames of Oxbridge graduates in the early 1800s, for instance, are three times as common among British MPs in the late 1900s.

    In the United States, tax return data for the top taxpayers was publicly reported in 1923–24. Nearly a century later, people with the same surnames as those who featured on the list are three to four times as likely to be doctors or lawyers, while those with lower-status names are underrepresented. People with the high-status surname Katz are twelve times as likely to be doctors and lawyers as those with the low-status surname Washington.

    In Japan, samurai surnames date back to before the 1868 Meiji restoration. Even today, they are overrepresented at least fourfold among doctors, lawyers, professors and writers. In China, Qing surnames overrepresented among the nineteenth-century elite are overrepresented among today’s corporate board chairs and government officials. In Chile, surnames overrepresented among landowners in the 1850s are still overrepresented among high-earning occupations.

    Strikingly, Clark finds persistence even in Sweden, one of the world’s most egalitarian societies. The 1600s and 1700s saw the creation of a set of “noble surnames,” which today have twice their expected share of doctors, five times their expected share of lawyers, and three times their share of members of the top 1 per cent of income earners. This degree of persistence of status across ten generations demonstrates the power of inherited privilege.

    GREGORY CLARK’s analysis of intergenerational mobility signals a marked shift in the way economists think about social mobility. In his 1988 presidential address to the American Economic Association, Gary Becker argued that “earnings are not strongly transmitted from fathers to sons.” Four years later, Gary Solon showed that prior researchers had been overestimating the degree of social mobility because they were using just a single year of data.

    To see how this happens, imagine a high-earning barrister who happens to take six months off work in the year of the survey. Now suppose his son becomes a high-earning barrister too. A study that used just one year of data might wrongly assume that this was a case of someone moving from rags to riches. But a study that used several years of data would see that both father and son were well-off.

    At this point, I need to introduce a few numbers. The standard measure of mobility across generations is the “elasticity” of children’s earnings with respect to their parents’ earnings – in other words, how closely the former reflects the latter. Because women have tended to have much lower rates of paid work, researchers have focused on the father–son earnings elasticity. An elasticity of zero means there was no relationship between the earnings of fathers and sons, while an elasticity of one would mean that a 10 per cent rise in fathers’ earnings was associated with a 10 per cent rise in sons’ earnings. The closer the elasticity gets to one, the less mobile the society.

    Elasticity measures aren’t confined to income. The elasticity of height, for example, is about 0.5, which means that if a father is ten centimetres taller than average then we expect his sons to be five centimetres taller than average. Sure, there are tall fathers with short sons (and vice versa), but basketball dads are generally taller than gymnast dads.

    In the case of earnings, economists’ best estimate of intergenerational elasticity went from 0.2 when they used a single year of earnings (as did the studies Gary Becker was relying on) to 0.4 when they used a few years of earnings (Gary Solon’s approach). Over the next decade, US researchers threw better and better data at the problem, and each time they found less and less mobility. Using more than a decade of earnings data, Bhashkar Mazumder estimated in 2005 that the intergenerational earnings elasticity for the United States was 0.6. That would put it higher than the father–son height elasticity. Among American sons, fathers had a larger impact on their earnings than on their stature.

    Using similar techniques, researchers began estimating father–son earnings elasticities for other countries. As one survey showed, Scandinavian nations tended to be extremely mobile, with elasticities below 0.2. In Latin America, there was much less class-jumping, with elasticities over 0.5. Compared with other nations, the United States is extremely immobile, a fact that Barack Obama has thankfully switched from denying (“In no other country on earth is my story even possible”) to decrying (“It is harder today for a child born here in America to improve her station in life than it is for children in most of our wealthy allies”).

    In 2006, while I was working as an economist at the Australian National University, I produced the first (and so far, only) estimates of the father–son earnings elasticity in Australia, putting the intergenerational elasticity at around 0.25. This means that a 10 per cent increase in a father’s earnings translates to a 2.5 per cent increase in his son’s earnings. My estimate implied that we are more socially mobile than the United States but not as mobile as Scandinavia. Looking back through the twentieth century, I found no evidence that we had become markedly more or less mobile.

    So what does the surname approach add to our understanding of mobility? Simply put, there are two reasons for using surnames. The first is that we only have good data on earnings (from surveys or administrative records) for the relatively recent past. If we want to understand mobility in centuries gone by, surnames may be the best torch for seeing into an otherwise dark statistical corner.

    The second, and more important, reason for using surnames is that they may help to take out some of the transitory fluctuations. Recall how we got more precise estimates of the intergenerational earnings elasticity when we used data that smoothed out the fluctuations in an individual’s earnings over a career? Call it the “odd year” problem. Now let’s think about a different problem: a family where the social status dips down for one generation, before reverting to the long-run average. You might call this the “black sheep” problem. By looking at surnames, we are able to look not just at single father–son pairs, but also at patterns for entire lineages.

    So once we take out the odd years and black sheep, how easy is it to jump between classes? Several assumptions need to be made in order to estimate an intergenerational elasticity from surnames. But if we accept Gregory Clark’s methodology, his results imply a very static society. For Britain, the United States, India, Japan, Korea, China, Taiwan, Chile and even Sweden, he concludes that the intergenerational elasticity is between 0.7 and 0.9. This would mean that social status is at least as hereditable as height. It suggests that while the ruling class and the underclass are not permanent, they are extremely long-lasting. Erasing privilege takes not two or three generations, but ten to fifteen generations. If you cherish the notion of a society where anyone can make it, these results are disturbing.

    How do we break the pattern? Part of the answer must lie in a fair tax system, a targeted social welfare system, effective early childhood programs, and getting great teachers in front of disadvantaged classrooms. We need banks willing to take a chance on funding an outsider, and it doesn’t hurt to maintain a healthy Aussie scepticism about inherited privilege.

    Yet Gregory Clark’s results also remind policy-makers that this is no easy nut to crack. Part of the transmission of social status occurs through genes. On top of this, people tend to marry those with similar levels of education; and researchers have also documented significant differences in parenting approaches among different social groups. Making the system a bit fairer is within our reach – but a complete transformation may prove elusive.

    Andrew Leigh is the Federal Member for Fraser and the Shadow Assistant Treasurer.  This article was published in Inside Story.

  • Stuart Harris. China is not seeking to break the rules of global order.

    Australia’s foreign policy, and notably its relations with the US and China, has been a mix of positives and negatives under the Coalition government, as was true of the previous Labor government.

    This reflects the lack of a broad strategic vision of Australia’s geographic realities and the evolving relationships involved.

    Former prime ministers, Gough Whitlam and Bob Hawke recognised the need for Australia to think strategically about future regional developments, and John Howard‘s thinking gradually moved in that direction. Such long term strategic thinking is more urgently needed today.

    The Asian region is changing, as are its regional dynamics. While the US is a Pacific power, it comes to Asia from outside. To complicate the picture, this is a region not only featuring China, but a China which is the largest trading partner with all Asian nations, including Australia. Our future relations with the region, in Northeast Asia and with the Association of Southeast Asian Nations (ASEAN) particularly, will depend upon our relations with China as well as with the US.

    A coherent strategy needs to reflect the reality that we are linked to Asia from within the region. It needs to reflect the growing importance of China globally and to Australia, and to develop a political depth with that country similar to that with the US. And it will be increasingly difficult to continue separating economic and strategic issues (paralleling, as we do, the divide between engagers and confronters in US policy). Consequently, adapting historian Michael Howard’s injunction, we need greater understanding of China’s environment, history, and culture, including its political system; that understanding does not imply that we like that system, but that we are able to work effectively with it.

    The dominant and often one-sided Western perspective is not always helpful when judging whether China will be aggressive and expansionist, or whether it will live more or less peaceably with the rest of the world. We assume that terms like ‘international rules’, ‘global order’ and what constitutes ‘responsible behaviour’ are understood and accepted by all others. Yet for China, these terms have emerged from a different culture and historical experience. These differences in vision affect China’s foreign policy. Even so, despite obvious exceptions, such as human rights, in practice China is well integrated into the international system as we know it and largely complies with international rules – probably at least as well as other major powers. Despite criticism of China’s reluctance to lead internationally, that approach might suggest not just free-riding, but reluctance to challenge the existing global order.

    When China opened up under Deng Xiao-ping, it joined an international order that reflected a pluralistic view of the international community, that acknowledged differences in political and domestic value systems, and that pursued mutually acceptable global rules and geopolitical equilibrium. Then the common vision shifted and the membership bar was raised.

    Ultimately, a US led international system emerged that involved an agenda of good governance, ‘free’ markets and ‘democracy’ (usually just elections). These aimed to advance US security and its other interests. The objective of regime change under this agenda in Iraq, Libya, Egypt, Syria and perhaps Ukraine suggests we should be cautious about what we wish for. For China, in any case, it implies regime change, social instability, and the end of the Party/state.

    Of course, China has regional and global ambitions and China’s relative military and other capacities will grow, probably substantially. China wants a role that commands attention and respect from its neighbours, particularly in its ‘near abroad’, and we may not always like what it or others do. So a continued US presence in the region is critical; it needs, however, to manage relations between states rather than just pursue political change or impose views of complex issues that then become part of the problem.

    China feels internationally vulnerable and, as with the US, domestic nationalism influences its policies. Internally, China’s leaders fear fragmentation, instability and, after Bo Xilai, competition for power. China has major problems: corruption, inequalities, pollution, resource shortages, an aging population, and an economy that needs structural reform. Consequently, with domestic issues as its main priority, its foreign policies will remain largely defensive and reactive to external influences, rather than offensive and expansive. Moreover, it knows it needs stable relations with the US and its neighbours in order to sustain its development. It will seek changes to the rules by basically working within the existing framework.

    Obviously, maritime disputes are worrying but hardly central to Australia’s strategic interests. Sovereignty claims by all parties in the South China and East China Seas are unhelpful and pose serious risks of miscalculation. Outcomes that reflect resolution of sovereignty claims are unlikely. Our attention is understandably focused on China, but the historical context needs to be understood including China’s ‘missing out’ on territory in the 1960s/1970s regional ‘island grab’. Provocations and efforts to change the status quo are not limited to China or unconnected to the US pivot and the regionally divisive Trans Pacific Partnership.

    A US regional presence remains strategically important; our values, however, are often different, as at times are our vital interests, and we need to re-examine our concepts of regional order. There are considerable risks in Australia’s growing enmeshment in the US regional security system to where our security policy is increasingly a function of that of the US, and an independent Australian position difficult to maintain.

    These issues will become important in the future, possibly with long term potential dangers in adverse regional developments, notably potentially over Taiwan. US diplomatic management of such problems will remain critical, but history will treat unkindly any Australian political leader who, consciously or inadvertently, commits Australia to military conflict involving China without clear public support and a full parliamentary debate for which an explicit strategic assessment of Australia’s long term vital interests would be a prerequisite.

    Stuard Harris is emeritus professor in the Department O International Relations at the Coral Bell School of Asia Pacific Affairs, ANU College of Asia and the Pacific. 

    This article was also published by the ANU College of Asia and the Pacific website: http://asiapacific.anu.edu.au/

    – See more at: http://www.policyforum.net/playing-by-rules/#sthash.ad9r7c6b.dpuf

  • John Menadue. How vested interests are subverting the public interest.

    There are many key public issues that we must address. They include climate change, growing inequality, tax avoidance, budget repair, an ageing population, lifting our productivity and our treatment of asylum seekers.

    But our capacity to address these hard issues is becoming very difficult because of the ability of vested interests with their lobbying power to influence governments in a quite dis- proportionate way.

    Lobbying has grown dramatically in recent years, particularly in Canberra. It now represents a growing and serious corruption of good governance and the development of sound public policy. In referring to the so called ‘public debate’ on climate change, Professor Ross Garnaut highlighted the ‘diabolical problem’ that vested interests brought to bear on public discussion on climate change.

    These problems include:

    • There are over 900 full time independent lobbyists working in Canberra, more than 30 lobbyists for every Cabinet minister. On top of these ‘third party’ lobbyists, there are the special interests who conduct their own lobbying, such as the Australian Pharmacy Guild.
    • These lobbyists encompass a range of interests including mining, clubs, hospitals, private health funds, business and hotels that have all successfully challenged government policy and the public interest. Just think what the Minerals Council of Australia did to subvert public discussion on the Super Profits Tax and the activities of Clubs Australia to thwart gambling reform, or the polluters over an Emissions Trading Scheme and the Carbon Tax. With its lobbying power over the major parties, the hotel lobby at the State level effectively determines hotel operating hours. Violence and crime are a result.
    • With journalism under-resourced, the media depends increasingly on the propaganda and promotion put into the public arena by these vested interests The Australian Centre for Independent Journalism at UTS found in a survey of major metropolitan newspapers published in Australia in 2010 that 55 per cent of content was driven by public relations handouts from lobbyists and their associated public relations arms, and 24 per cent of the content of those metropolitan newspapers had no significant journalistic input whatsoever., relying heavily on public relations handouts.
    • The Media Council of Australia has drawn attention to how media independence is increasingly compromised by ‘advertorials’, a deliberate confusing of advertising and editorial content. The Council also drew attention to trips financed by large corporations and organisations that were not disclosed. It’s not just travel companies that do this.
    • With over 60 per cent of metropolitan newspaper circulations in Australia, News Ltd is a major obstacle to informed debate on key public issues like climate change.
    • The health ‘debate’ is really between the Minister and the Australian Medical Association, the Australian Pharmacy Guild, Medicines Australia and the Private Health Insurance companies. The debate is not with the public about health policy and strategy, it is about how the Minister and the department manage the vested interests.
    • The wealthy private schools are obstacles to needs based funding which is necessary for both equity and efficiency reasons
    • Much of the policy skills in Canberra departments has been downgraded and much of the policy work is now in the hands of young staff in ministers’ offices that are much more inclined to listen to vested interests.
    • Policy work within the government is now undertaken more in specialist organisations such as the Productivity Commission rather than in the departments. Departmental policy capability has been seriously denuded.

    What can be done?

    • Federal lobbyists have to be registered with the Department of Prime Minister and Cabinet, but this is inadequate. They should also be obliged to promptly, publicly and accurately disclose the discussions and meetings they have had with ministers, shadow ministers and senior public servants.
    • All proposals by special interest groups should be accompanied by a public interest impact statement prepared by an independent and professional body. This public impact statement would be attached to representations from the vested interest group. Many of the major private consulting firms should be excluded from this process as many of them have shown themselves to be compromised in the interests of their clients.
    • Refuse tax benefits for ‘think tanks’ like Institute of Public Affairs which are secretly funded and act as fronts for vested interests.
    • Departments such as Health which are so influenced by special interests should have different governance arrangements. The traditional minister/departmental model in Health is a happy hunting ground for vested interests that significantly influence outcomes in health. The Reserve Bank, composed of independent and professional persons, has shown the benefit of such governance arrangements in keeping vested interests at bay and promoting an informed public debate. We need such an arrangement in the health field particularly.
    • No minister or senior official should work with a vested interest group that they have been associated with for at least five years after retirement or resignation.
    • There should be increased funding to the Parliament to provide alternate public advice in key policy areas. The Parliamentary Budget Office is a good start. The current policy vacuum must be filled by independent and professional advisers. At the moment the policy vacuum is filled by special interests assisted in many cases by a compliant and under-resourced media.
    • Adequate funding of the Australian Broadcasting Commission to assert the public interest and develop good public policy is now more important than ever.
    • Major reform of election funding to stop powerful groups buying political favours.
    • A federal Independent Commission Against Corruption and in each State to examine allegations of corruption.
    • Citizen Assemblies of randomly selected people who are fully informed on key public issues to advise governments.

    Action to assert the public interest in the face of powerful vested interests is necessary on many fronts. The problem is urgent.

    This article is part of a series ‘Who speaks for and protects the public interest in Australia? published by Australia 21. Other articles in this series can be accessed by clicking on my website at the top of this page.

  • Intergenerational Report and Australia’s future.

    In The Age on February 23, Sam Hurley from the Centre for Policy Development highlighted the importance of long-term policy priorities that will support people across all generations. He refers to the crucial issues that we must face that go beyond the one-liners about debt and deficit. See link to article below.  John Menadue.

    http://www.theage.com.au/comment/the-intergenerational-report-should-be-the-time-for-a-conversation-about-australias-future-20150223-13m59i.html

  • The economic potential of older people.

    In the SMH on February 22, Susan Ryan, the Age Discrimination Commissioner, described how many older workers are being ignored , yet they could be making a more significant contribution to the economy and society. For article, see link below. John Menadue

    http://www.smh.com.au/comment/the-economic-potential-of-older-people-is-being-ignored-20150222-13lfgt.html

  • John Menadue. Is there intergenerational theft?

    Yes – there certainly is, but not in the ways that Tony Abbott and Joe Hockey suggest.

    In his National Press Club speech on February 2, Tony Abbott said ‘Reducing the deficit is the fair thing to do because it ends the intergenerational theft against our children and grand-children.’

    Joe Hockey has also been talking up issues of intergenerational theft in preparation for the release of the fourth Intergenerational Report (IGR).  He says we will ‘fall off our chairs’ when we see the numbers in the report. Apparently the government plans an advertising campaign to tell us how serious the problem is of our ageing population and the economic consequences.

    Joe Hockey’s rhetoric is designed to resurrect his failed sound bite about debt and deficits. Unfortunately for him, the public is not listening to his message that the budget needs to be brought into balance. We have turned off because of his and Tony Abbott’s wild exaggeration on debt and deficits, and the obvious unfairness of his 2014 budget.

    But we do have an intergenerational problem. There are several contributing factors.

    The first and by far the most important is climate change. My generation is failing to take this problem seriously. Our failures will bring major problems, even calamity for our grand-children. Global warming has major impacts – rising temperatures, changes in rainfall patterns, drier and hotter summers, more bushfires, fewer but more destructive cyclones, rising sea levels, and destruction of icons like the Great Barrier Reef. This is an intergenerational threat on an enormous scale. The Abbott government has done less than almost any government in the developed world to address the Damocles sword of climate change that is hanging over our grand-children’s future. The Abbott government has dismantled almost every program to tackle climate change.

    On the economic front the Abbott government has refused to tackle the issues that give privileges to older generations like mine.

    Superannuation tax concessions cost the taxpayer about $32 billion p.a. and rising rapidly to almost $50 billion by 2017-18. This generous middle-class welfare benefits older generations. We don’t even have to pay tax on superannuation income once we turn 60. This is intergenerational theft. The Abbott government like its predecessors is dodging the issue. Vested interests in the superannuation sector and particularly the four major banks with their large superannuation subsidiaries are doing their best to protect the wealthy and the aged.  The unfair privileges for older Australians like me are being protected.

    Older and wealthy people are putting their money into investor housing to get a tax advantage through negative gearing. The estimated tax loss of this is $7 billion p.a. Over 60% of bank loans for housing is for investor loans. Is it any surprise that first-home buyers – my grandchildren’s generation – are finding it extremely difficult to buy a house; something that my generation took for granted. A student asked the Reserve Bank Governor, Glen Stevens, at Club Central, Hurstville, ‘How am I ever going to afford a house?’.  We are engaging in intergenerational theft.

    The discount on the Capital Gains Tax is largely at the expense of younger generations

    Then there is the Abbott government’s proposal that we hear about so much from Christopher Pyne that will load up students with enormous debt in the future. Intergenerational theft!

    The Abbott government proposes to penalise the unemployed, mainly young people, by denying them unemployment benefits for a period.

    Now we learn that the government and the opposition are refusing to entertain any idea of including the home in the means test for the aged pension. Once again, the older generation like mine, will benefit, with many senior taxpayers with large and expensive mansions drawing the aged pension or aged pension concessions.

    We do have a problem with the privileges that my generation enjoys. The scales are being steadily loaded against my grand-children’s generation.

    Climate change is the most critical way in which we are refusing to acknowledge the rights of younger generations. We look like handing on to them a planet that is under serious threat.

  • John Menadue. Privatisation – a worn-out ideology.

    Voters are making it plain that they are not keen on privatisation. Economic research also tells us that the evidence in favour of privatisation is not conclusive.

    Conservatives claim that privately owned businesses are better managed than public ones, but I suggest that the main reason for increased productivity of businesses that are sold is not privatisation but the deregulation of the market, offered at the same time or in anticipation of privatisation.

    Essential Report in early February this year asked interviewees about their attitude to privatisation. Their responses to questions were as follows.

    • Selling off public utilities to private companies will help the economy. 25% agreed and 53% disagreed.
    • Selling government assets frees up money to reallocate to other services and infrastructure. 38% agreed and 44% disagreed.
    • Privatisation mainly benefits the corporate sector. 70% agreed and 13% disagreed.
    • Utilities like water and power supply is too important to be sold off. 72% agreed and 13% disagreed.

    As I mentioned in my blog on 4 February ‘Recent polling by Reach Tel for Stop the Selloff Campaign  reveals that 67% of people in Victoria and 74% of people in South Australia believe that they were worse off with privatised electricity networks.’

    The Swinburne Business School has studied closely the data on the effects of privatisation. It concludes that the evidence is ‘far from conclusive’ one way or another. This study was recently published in the Australian Economic Review.

    Overall I suggest that there is little evidence that privatisation has delivered improvements in living standards, but Conservatives and particularly financial advisers and underwriters who benefit from privatisation, keep spruiking about its merits.

    If we look at the big ticket privations in Australia, the story is mixed.

    Telstra was the largest privatisation but the improvements have come through increased competition and deregulation in the retail sector. If the wholesale arm of Telstra (exchanges, cables, etc.) had not been privatised – structural separation – we would be well on the way to a world class NBN. The privatisation of Telstra’s wholesale arm was an enormous mistake. We are paying dearly for it.

    Have we benefitted from the privatisation of the Commonwealth Bank? With the strong market power of the four banks today, there is little to distinguish the public contribution of the Commonwealth Bank.

    Has the privatisation of Qantas worked? The main public benefits have occurred because of market deregulation, the end of the two-airline domestic policy and increased international competition by allowing in more foreign operators. To make a political success of privatising British Airways, Maggie Thatcher fattened up BA before the sale by helping to get rid of some of BA’s competitors and by entrenching BA’s position on Atlantic routes and at Heathrow airport.

    Are we better off with the privatisation of our airports? Capital city airports are really natural monopolies with very little competition. They are able to exploit their market power by gouging consumers. Sydney Airport has been given a privileged position which will enable it to veto any effective competitor for a second Sydney airport.

    We had a clear message on privatisation from voters in both the Victorian and Queensland elections and asset sales will be a key issue in the pending NSW election.

    The NSW government is telling us that the only way to build infrastructure is to sell electricity assets. But with interest rates at record low levels it has never been cheaper than today to borrow. We don’t have a debt problem despite the shrill propaganda. Furthermore, Australian governments can borrow much more cheaply than private operators.

    The NSW government is warning that a plan by the Australian Energy Regulator to force NSW electricity networks to cut their share of household electricity prices by 30% from July 1 this year could threaten the safety and reliability of the state’s power network. What nonsense! The NSW government is opposed to this cut in prices because if it did so the profitability of the networks would be reduced and the return from the planned 49% privatisation would be significantly downgraded. The NSW government wants to fatten up the electricity utilities by denying price reductions to consumers.

    Privatisation is not a magic bullet as we have seen in so many instances. It is looking more and more like an ideological hangover. Voters are clearly not convinced.

  • John Menadue.  Climate change and the rise and demise of Tony Abbott.

    Opposition to climate change was the vehicle for Tony Abbott to rise to the leadership of the Liberal Party. It is now making a major factor in his demise as Prime Minister.

    Tony Abbott regarded climate change as ‘absolute crap’ and in December 2009 he rallied the support of the  right wing of the Liberal Party led my Nick Minchin to overthrow Malcolm Turnbull as the leader. His victory margin was one vote. Malcolm Turnbull had been negotiating with Kevin Rudd for a bipartisan commitment on an emissions trading scheme.

    But with the leadership in his grasp and with the media and climate sceptics supporting him, Tony Abbott seized on the carbon tax and did what he does best, attack.

    We have never seen such a wrecking ball campaign on such an important issue as climate change and the associated carbon tax. He was joined in his exaggerated campaign against the carbon tax and climate change by News Corp and numerous right-wing ideologues posing as serious business people.

    This campaign was highly successful and in government he attacked every arm of government associated with climate change. But the ground was slowly moving around the world as one scientific report after another confirmed the growing threat of climate change induced particularly by coal-fired electricity generation. Even though the ground was moving, Tony Abbott continued to talk about ‘king coal’ and how the world would have to rely on coal for the rest of this century.

    Then came President Obama to the G20 meeting in Brisbane in November last year. This meeting of the twenty most powerful economies in the world was hoped to be a crowning success for its Chair, Tony Abbott. But it was not to be.

    Before arrival in Brisbane, Barack Obama had announced in Beijing an historic climate change agreement with the Chinese President. But there was more to come. Barack Obama took the platform at the University of Queensland and told the world that Tony Abbott was failing on climate change. Politely and clearly President Obama affirmed the science on climate change that Tony Abbott was denying.  He said that Australia faced longer droughts and more bushfires. He added that the incredible national glory of the Great Barrier Reef was threatened. He spoke of the increased production of carbon emissions and demanded that all countries step up and do more both nationally and internationally on climate change.

    Tony Abbott had tried to keep climate change off the G20 agenda. He failed. His PR people, including Julie Bishop, did what Tony Abbott does best – attack. They attacked our principal ally the US for daring to say these things in Australia about climate change.

    Lenore Taylor in The Guardian of 13 February 2015 put it this way. ‘An authoritarian leader’s need to attack, even annihilate critics can also be devastatingly self-defeating. Tony Abbott and senior ministers were deeply angry at Barack Obama’s show-stealing climate change speech during the G20 and in true authoritarian style launched an extraordinary onslaught on an ally. They briefed multiple News Ltd columnists to that effect, including graphic accounts of how they rang up afterwards and yelled at State Department officials for failing to give a “heads up” that the president was going to “dump on” the Prime Minister. Julie Bishop said the President clearly hadn’t read a briefing on all the excellent things Australia is doing to protect the Great Barrier Reef. Andrew Robb said the President had been misinformed.’

    The denial of climate change and the campaign against a carbon tax to reduce carbon emissions was a central factor in projecting Tony Abbott into the Lodge. But now our principal ally was telling him that he was wrong. President Obama catalysed for all that Tony Abbot was not only denying the science on climate change but that he was out of step with the world.

    In the opinion polls Tony Abbott had some minor recovery in the lead up to the G20 in November last year. From then on his personal and his party’s standing have slumped dramatically.

    Many factors, including personality, have played a part in Tony Abbott’s demise, but there is no doubt that climate change which facilitated his rise is the most substantial influence in his demise.

    Climate change will be written on his epitaph.

  • John Menadue. Fairness, Opportunity and Security – Filling the policy vacuum

    I sense that there is great public concern that both the government and opposition keep playing the political and personal game at the expense of informed public discussion of important policy issues.

    We have become concerned about the trustworthiness of our political, business and media elite. Insiders and vested interests are undermining the public interest. Money is unduly influencing political decisions. There is gridlock on important issues like climate change and taxation.

    After a near death experience Tony Abbott has said the he is open to new thinking and ways of governing. ‘Good government begins today’  Time will tell. Bill Shorten has said that 2015 will be the year of ideas. I hope so.

    In this blog over the next few months I will be posting a series of articles on important policy issues. I posted a three parter on health policy on January 27, 28 and 29.

    There will be range of contributors.Some  have contributed in the past to this blog

    Each of the policy articles will be about 2000 words. They will not be “pie in the sky’ but realistic, given our political and financial constraints.

    It is planned that these policy articles will be published in a book by ATF Press in October/November this year

    Policy areas to be canvassed

    Economic policy

    Fixing the budget

    Taxation

    Federalism

    Productivity

    Job creation and participation

    Foreign policy

    Security, both military and soft power.

    Health

     Development of our human capital in the fields of education, science, research and development and innovation.

    Transport and infrastructure

    Population/migration/refugees

    Welfare priorities

    Retirement incomes

    Indigenous affairs

    Communications and the Arts

    Environment and climate change

    Inequality

    Role of government including tackling corruption and bad behaviour

    Democratic renewal – the lack of trust in government and the hollowing out of our political parties.

    Terrorism and internal security whilst protecting of our freedoms

     

  • Walter Hamilton. Ships and Boats and Please Explains

    If the main aim of building ships in Australia for the Royal Australian Navy were to keep locals in work, then the South Australian-based Australian Submarine Corporation (ASC) would be a pretty good model. It spent around $400 million on salaries last year, about half its budget. If the aim, however, is to build on time, on budget, and to obtain value for money for Australian taxpayers, ASC would be a terrible model.

    South Australian spruiker Senator Nick Xenophon and others are on the warpath against competition from Japan, ahead of the long-delayed decision on supplying the next generation of submarines for the RAN. Xenophon thinks the government-owned ASC (formerly Australian Submarine Corporation) is the ticket. He claims the ASC-built Collins-class subs are now “very good” at what they do­­––proof that local know-how is perfectly able to meet the Navy’s future requirements.

    Defence Minister David Johnston intemperately (though not unreasonably) claimed last year that ASC couldn’t be trusted to “build a canoe”––and lost his job for saying so.

    Who is right?

    ASC exists to fulfill two major defence contracts: for the 6 Collins-class submarines currently (or at least sometimes) in service and the 3 Air Warfare Destroyers (AWD) now under construction.

    The company’s performance delivering and maintaining the Collins submarines was, until recently, woeful. The final report of the Coles Inquiry into the debacle, issued last year, said there had been “remarkable progress” in several areas, with reduced breakdowns and speedier maintenance. The Navy was pleased to say now that 2, and often 3, of its 6 subs were available to put to sea at any time. If that sounds less than spectacular, consider this: there were times after the Collins-class subs came into service when none was available to defend the country.

    The first subs ASC built were too noisy to avoid detection and so prone to engine failure due, among other things, to “poor design and manufacture”, it was felt in 1999 they would never meet the standard for military operations. Retrofits and redesigns have brought the subs up to scratch, but this laborious process (“ASC is a learning organisation” says the company’s annual report) has taken 27 years of a 35-year life of project, i.e. from contract-signing to when the subs will have to be replaced. The Navy began its search for a replacement submarine several years before the Collins class started delivering on its original promises.

    Now, if ASC is, at it says, a “learning organisation”, given the experience with the Collins project, one might expect it to do a lot better with the more recent AWD project. Unfortunately it has not. The first of the destroyers was due for delivery last December. The deadline came and went unfulfilled. The project is running 3 years late (for the 3rd ship) and hundreds of millions of dollars over budget. In 2013-14 the project crawled from 70% complete to 73% complete. ASC admitted to “significant challenges” in the program. Once again, the government has had to devise a rescue plan for ASC in a bid to prevent another gap opening in the country’s defence capability. This is not the “old story” of the Collins debacle, that defenders of ASC would have us discount; it is the current state of affairs in the biggest naval project Australia has ever undertaken. Who would not wish that things were different, and we were able to sing the praises of an Australian success, but nothing is gained by hoodwinking public opinion with cheap, unsubstantiated claims of a “secret” Abbott-Abe deal to give the next submarine project to Japan.

    I am, of course, not privy to the discussions taking place, though I have written here before about the close interest shown by both Tony Abbott and the now former Defence Minister Johnston in Japan’s submarine capability and, therefore, I have no doubt that Canberra would be well disposed to such a result, if it happened. But this is a far cry from the uninformed, jingoistic claptrap that is overtaking the debate on radio talkback, etc.

    Here are some facts to consider.

    The Defence Department and the RAN began scouting for Australia’s next generation submarine in 2007 and continued the process under the Rudd-Gillard-Rudd governments.

    One of the major lessons the Navy learnt from the selection process used for the Collins contract was that an open tender proved more open to political influence and fudged specifications than to public, or even departmental, scrutiny. The term “open tender” was a misnomer. European consortiums either joined the bidding with designs for “export only” submarines they had never ordered for their own navies or with designs that required significant modifications to meet Australian requirements. This flawed process greatly contributed to the project’s chronic problems.

    Navy and Defence decided that a better approach would be to survey what capabilities existed here and overseas to actually deliver to performance specifications that, on this occasion, would be defined more precisely than they were for the Collins project. They did not want to invest in another unpredictable and costly “learning curve”. Time went by, governments came and went, and by 2014, seven years into the study program, it became apparent that, at this rate, there was a risk the Collins-class subs would be obsolete and unserviceable before a replacement could be delivered––especially if a design were chosen that required major modifications and the fitting out of a completely new manufacturing operation.

    From the beginning, the Japanese were in the periscope sights of the RAN, because of the widely held opinion in international defence circles that their non-nuclear powered submarines are second to none. They are reliable and run almost noiselessly: two key requirements. Back when the Collins project was being tendered, Japan was not in the business of exporting military technology. Once that changed the Japanese automatically became front-runners. It did not take any “secret deal” to bring this about. The Sōryū-class diesel/electric submarine is the model being assessed. A sale to Australia––which could easily involve a major component of local manufacture and maintenance––would undoubtedly be a feather in the cap for Prime Minister Shinzo Abe, a proponent of a greater Japanese defence capability, but news reports this week that Japan’s Defence Ministry was thrown into confusion by the Abbott leadership challenge were sheer hyperbole, presumably intended to bolster conspiracy theorists like Xenophon and his ilk.

    It reminds me of the way the Japanese proposal for a Multifunction Polis in the 1980s was exploited by an ignorant commentariat––until the controversy, among other things, derailed the 1990 election campaign of Andrew Peacock (who fell for the “Japanese invasion” rhetoric). If the submarine project is swept up into the maelstrom of Liberal Party politics once more, with the enthusiastic encouragement of Labor and the Greens, etc., a rational decision-making process may prove to be impossible. Better to scrap the whole project if it means building subs that arrive late and incapable to a future conflict.

    Walter Hamilton is the author of “Children of the Occupation: Japan’s Untold Story” and “Serendipity City: Australia, Japan and the Multifunction Polis”.

     

     

     

     

     

     

  • John Menadue. The nonsense about Free Trade Agreements

    In his tormented defence of his government’s performance, Tony Abbott highlighted some of his so-called achievements.  They included the Free Trade Agreements (FTAs) with Japan, ROK and China.

    Most of the work in preparation for these agreements had been done by the Rudd and Gillard Governments, but the Abbott Government was so  politically driven to get some achievements on the board that it eagerly signed up to these three agreements.

    Andrew Robb, the Minister for Trade, described these three agreements as ‘The biggest transformational initiatives in public policy since the floating of the Australian dollar thirty years ago.’  It is hard to beat that for sheer hyperbole. I hope he doesn’t believe it!

    In several blogs over the last year, I have expressed my doubts about these types of trade agreements.

    The 2010 Report of the Productivity Commission said that it had received ‘little evidence from business to indicate that bilateral agreements to date have provided substantial commercial benefits’.  It said that while bilateral trade agreements could ‘reduce trade barriers and help meet other objectives, their potential impact is limited and other options often may be more cost-effective’. It continued that FTAs ‘lack transparency and tend to oversell the likely benefits and that pre-negotiation modelling should include realistic scenarios and be overseen by an independent body’.

    A Senate Report from the Joint Standing Committee on the FTA with Korea, chaired by a Liberal/National Party member in September last year said ‘The World Trade Organisation cautions that, although such agreements can complement the multilateral trading scheme there are a number of concerns.’ The report then elaborated on its serious concerns about trade diversion and confusing country-of-origin rules.

    The most explicit example of a failed FTA is the Australia-US Free Trade Agreement that was negotiated in great haste by the Howard Government to ingratiate itself with the Bush Administration. Shiro Armstrong, the Co-Director of the Australia/Japan Research Centre at the Crawford School of Public Policy at the ANU has pointed to the extremely disappointing results from this agreement with the US.  In the AFR on 9 February this year he said

    ‘The critics were right. Ten years after the Australia-United States Free Trade Agreement came into force, new analysis of the data shows that the agreement diverted trade away from the lowest cost sources. Australia and the United States have reduced their trade by $A68 billion with the rest of the world and are worse off than they would have been without the agreement. When the Howard Government was putting the agreement in place, there were serious concerns about whether it would distort trade and impose costs on the Australian community rather than expand and lower the cost of trade. … Enough time has now passed and there has been enough data … to update the Productivity Commission’s model estimate on the effect of the Australia-US Free Trade Agreement on trade. The agreement was responsible for reducing or diverting $US53.1 billion of trade with the rest of the world by 2012. … Trade agreements that introduce distortions and discriminatory treatment mean that winners and losers are largely determined by preferences and privileges assigned by negotiated treaties. The US agreement carries important lessons for Australia in its future trade and foreign policy strategy. Deals that are struck in haste for primarily political reasons carry risk of substantial economic damage.’

    Despite the rhetoric of the Howard Government, the FTA with the US turned out to be a real dud.  The FTA’s with Japan ROK and China will be better than the dud deal with the US but we should be very careful about the wild claims made today about new FTA’s.

     

  • Michael Sainsbury. FIRB credibility shot with execution of Chinese gangster.

    Liu Han, the Chinese criminal whose billion dollar bid for Australian mining company Sundance Resources sailed through the Foreign Investment Review Board with barely the bat of an eyelid has been executed along with his brother, Liu Wei once one of China’s ten most wanted murderers.

    So endeth one of the most embarrassing episodes in recent Australian corporate history that exposed the incompetence not just of FIRB but of the Australian Securities and Investments Commission as well.

    It was very clear by stories published in the media and in publicly available information that Liu was a very questionable character, almost certainly a gangster. Much of this information was available using simple Internet searches. The directors of Sundance also appear to have wilfully ignored evidence relating to Liu Han’s company Hanlong and his own background, it seems they did little if any due diligence in their unseemly rush to unload the company. Shareholders and Australian citizens deserve better.

    In the aftermath of the deal, five executives of Hanlong were caught insider trading by ASIC. It’s a crime committed with obvious and monotonous regularity on the Australian Securities Exchange, yet so very rarely does ASIC move. So ham-fisted were the efforts of the Hanlong crew that even plodding ASIC officials were forced to take action. But when they did they inexplicably allowed one of the accused, Stephen Xiao, to return to Hong Kong to seek medical treatment, Australia’s world renowned doctors apparently, were not good enough. To absolutely no one’s surprise, Xiao reneged on his promise to come back. Would any reasonable person?

    But he was unlucky enough to be the victim of some rare karma when he was returned by Chinese police, clearly as part of the deal with he Australian Federal Police to help them track down Chinese officials shoveling ill-gotten gains and escaping the clutches of the ongoing anti –corruption purge inside the ruling Chinese Communist Party into Australia, via the previous Labor administration’s questionable $5 million buy-a-citizenship visa program and its Abbott government successor

    It was this same campaign that swept up Liu Han. Only a few years earlier Liu had managed, perhaps corruptly, to obtain foreign investment approval from China’s National Development and Reform Commission, the top economic ministry which is now under heavy scrutiny from anti-corruption investigators. Already a number of its senior officials have gone down. It is to be hoped that FIRB has learned some lessons and is keeping a very close eye on these developments.

    The AFP’s deal with Chinese authorities raises serious moral and ethical questions about whether Australia should be complicit in returning people to possible death by state execution a la the Liu brothers. The heavily Christian Abbott Cabinet – Julie Bishop is the only senior member who does not claim to be a practicing Christian – should take a good hard look in the mirror when such deals are done on their watch.

    As Chinese investment in Australia continues apace, particularly by private individuals and companies, it remains unclear whether FIRB has learnt to use Google or are any better equipped to investigate Chinese  – or for that matter any other foreigners investing in Australia. The AFP is already under a cloud for its role in delivering the Bali Nine into the hands of Indonesian authorities and, in the case of at least two of that group, imminent death by firing squad. Perhaps Australians won’t care so much when a corrupt Chinese businessperson and perhaps his or her spouse are caught in Australia and returned to China, only to be executed by the government – but they should – it would mean Australia condones and is complicit in murder.

    The Australian government, and its agencies needs to sharply, lift its game in understanding both foreign companies who want to invest in Australia as well as in  clarifying its position on sending people – Australians or foreign nationals – into situations where they could face state sanctioned murder.

    Michael Sainsbury is a journalist who works out of Bangkok. This article was first published in his China blog on 9 February 2015. 

  • Greece didn’t fail, but the EU’s debt moralising did.

    It is often said that if you owe the bank $1 million you have a problem.  But if you owe the bank $1 billion, the bank has a problem!  The EU has that sort of problem with Greece. Joseph Stiglitz, in a recent article (see link below) sets out the problems which the EU now faces. This article was originally published in AlterNet.   John Menadue

  • John Menadue. Is the public sick of reform?

    The business sector and the media have each been asking this question. It is not surprising perhaps in view of Tony Abbott’s plummeting approval rating and the election results in Victoria, Queensland and South Australia.

    In the Australian Financial Review on 2 February 2015, Laura Tingle said ‘The biggest national question to flow from Queensland’s historic 2015 election result is not whether the Prime Minister will survive, but whether, after 30 years, voters have had enough of political rhetoric about reform and change and whether both sides of politics back away from ambitious reform as a result.’

    Perhaps election day in Queensland was ‘a disappointing day’ for the Business Council of Australia and the ‘reforms’ its rent seeking constituency would like, more privatisation.

    My contention is that the public will respond to well developed and explained policies for change. But that was not what we are being presented with. What we have been hearing about for many months is a burnt out ideological agenda from the Government and the BCA that markets are always right and that privatisation is the way of the future. Surely privatisation reached its high water mark years ago and it has been ebbing ever since.

    Queenslanders have particularly shown that asset sales are now off the agenda. Even the Liberal National Party in Queensland has now disowned asset sales.  It should have learned a lesson from former Queensland Premier, Anna Bligh, who decided that her Labor Government would sell Queensland Rail. She was defeated after a long period of Labor Governments, but the sale of Queensland Rail really soured the public attitude to her government.

    In all these cases of privatisation, there is a strong public perception that wealthy financial advisers, underwriters and brokers have drained hundreds of millions of dollars in fees at the expense of the public.

    It will be interesting to see what the NSW Premier, Mike Baird now does about his proposal to lease the state-owned transmission company Transgrid and over 50% of distribution businesses Ausgrid and Endeavour Energy for 99 years to the private sector. Recent polling by Reach Tel for Stop the Selloff Campaign reveals that 67% of people in Victoria and 74% of people in SA believe that they were worse off with privatised electricity networks.

    The question will also be asked in the NSW election in eight weeks’ time that with the interest rate at record levels, the most prudent thing to do would be to borrow rather than sell valuable assets to build new infrastructure. The 10 year bond rate is the lowest in living memory at 2.25%. We could lock in a record low interest borrowing for 10 years. With our inflation rate at about the same as the bond rate the real interest rate would be close to zero.

    At the national level Tony Abbott has not put forward well-developed and explained policies. At the last election, he had a lot of one-liners but very little developed thought on policy. Tony Abbott didn’t win the last election with his so-called ‘policies’ he won because of the shambles of the Rudd/Gillard era.

    Tony Abbott’s wrecking ball approach which was so successful in opposition is not working in government. His policies have not been carefully developed and explained. In his National Press Club speech he spent a large amount of time trying to sheet home responsibility to the Rudd and Gillard governments rather than defend his own record and explaining his vision for the future.

    The public is clearly not impressed with policies like asset sales and taxes that benefit big business and the wealthy, but leave the public the loser. That is why Joe Hockey’s budget is in ruins. It was regarded as unfair. No attempt was made to wind back the benefits of the generous superannuation concessions, concessions on the capital gains tax, negative gearing, salary packaging and the very widespread failure of wealthy companies, many of them international, to pay tax – Apple, Google, Glencorp, Westfield, News Corp and Ikea.

    I am confident that the public will respond to well-developed policies that are efficient and fair.

    Tony Abbott has never developed a credible narrative. He has not thought much beyond one-liners. He has done very little in credible reform and the bits and pieces he talks about don’t fit into a coherent story.

    Bill Shorten speaks of 2015 as being the year of ideas.  There’s a lot of policy development to do, but will he go the same way as Tony Abbott and attempt to gain office by default.

    The public is certainly sick of the type of ‘reform’ that we are being offered by the government and its friends in big business. But I am confident that the community, if treated respectfully, will respond to relevant policies that are well developed, tested, fair and properly explained. We have had very little of that in the last 18 months.

     

  • John Menadue. Tony Abbott at the National Press Club

    In his speech today, Tony Abbott recycled many of his one-liners that we heard at the last election. Let’s examine several of them.

    First, he said that his government was a low-taxing government and that it would reduce the budget deficit by reducing spending, rather than increasing taxes. But the most recent mid-year economic forecast shows that tax receipts are increasing substantially as a result of allowing budget creep as people move into higher income tax brackets. Government receipts/taxation are projected to increase by 2% from 22.8% of GDP in 2012-13 to 24.8% in 2017-18. Further the coalition said it would reduce debt. At the end of 2013 actual net debt was $178 b. The Department of Finance tell us that at the end of 2014  the net debt was $239 b, an increase of $61 b or 35%

    Tony Abbott said that he would stop the boats. But despite being told about the success of this ‘signature policy’ and the uncritical response of the media, the facts are that Tony Abbott did not stop the boats. What started the reduction in boat arrivals  was the announcement by Kevin Rudd on 19 July 2013, two months before the last election, that any new boat arrivals would be processed offshore and if found to be refugees, would not be settled in Australia. That was the real game changer, not Operation Sovereign Borders and the turn backs of a few boats to Indonesia.The number of people arriving by boat in July 2013 was 4,145. It fell substantially to 837 by the time the Abbott Government took power. The downward trend began in July 2013, two months before Tony Abbott came to power.

    As part of a dishonest and exaggerated scare campaign, Tony Abbott said that he would abolish the carbon tax. He did. But now without a carbon tax or an emissions trading scheme, we have no credible policy in place to address the growing threat of climate change. If Malcolm Turnbull comes back as leader an emissions trading scheme will be quickly back on the agenda.

    Tony Abbott said that he would abolish the mining tax. And he did – and Australia is much worse off as a result. Giant international mining companies like Glencore are paying very little company tax at all. Is that good economic management and is it fair?

    In his press club speech, Tony Abbott said that his government was on track in the building of roads. But many of the roads he claims to be building are really recycled projects from the previous government which Anthony Albanese had announced. In any event, we don’t need more roads for the reasons I have written about in this blog. We need to invest in new public urban rail systems.

    In his press club address, Tony Abbott complained about the Senate. Certainly the Senate has refused to pass some key government budget items, but that has been because the Senate came to the view, which I generally agree with, that many of the government’s budget proposals were unfair. Furthermore, Tony Abbott now prefers that we forget that at the last election he said that he would not hesitate to take the parliament to a double-dissolution if it was necessary to tame the Senate and the ALP. We have heard nothing more about this threat if the senate continues to misbehave. The media has completely forgotten this threat or was it a promise.

    One liners may be effective in opposition and at election time but they don’t usually make for good policy.

  • Europe and the Greek elections.

    The Greeks have been suffering for decades at the hands of a political and business oligarchy. Corruption and massive tax avoidance have been commonplace. It is not surprising that the Greek people rejected the mainstream parties and have thumbed their noses at the the EU, the European Central Bank and the IMF. Europe looks to be headed into new territory. Leonid Bershidsky on ‘Bloomberg View’ has an interesting take on ‘Syriza, Le Pen and the Power of Big Ideas’.  John Menadue.

    http://www.bloombergview.com/articles/2015-01-26/syriza-le-pen-and-the-power-of-big-ideas